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Apr. 25, 2013

MARKET SNAPSHOT: Baton Rouge Posts Negative Rent Growth in Key Submarkets

By Philip Shea, Associate Editor

Source: Hendricks-Berkadia

Due to a marked lag in demand from 2008 to 2011, the city of Baton Rouge saw a precipitous decline in rent growth last year—falling from 4.2 percent to -0.3 percent overall. Among the hardest hit areas was the Louisiana State University submarket, which had seen rents as high as $1,160 per month. This figure fell 4.7 percent in 2012.

However, the metro also saw vacancies fall for the first time since the financial crisis during this time, and Hendricks-Berkadia expects that rents will resume growth in 2013. The overall vacancy rate fell 70 basis points from 6.6 percent to 5.9 percent in 2012.

One key factor belying the rise in vacancy—a trend that defied most other metros during the recession—was a massive delivery of new units in 2008, which the market was slow to absorb. Yet with vacancy once again below 6 percent and expected to continue falling through 2014, developers are modestly resuming construction projects. Hendricks-Berkadia expects 350 units to be added by the end of this year, with another 500 units the year after.

Furthermore, continued job growth is bringing confidence to both developers and investors. 2012 saw the addition of around 3,200 positions to the area, with another 3,700 expected for 2013. A great bulk of these jobs will be in the construction sector, while manufacturing and information services also expected to see significant gains.

Source: Hendricks-Berkadia

Hendricks-Berkadia reports that ExxonMobil recently began work on the expansion of an existing plant in the area, creating more than 400 construction jobs and ultimately 50 long-term positions. Additionally, Ameritas Technologies is set to open an information technology center that will add 150 jobs this year and another 150 in 2014.

Overall vacancy is set to decline by another 80 points to 5.1 percent by the end of this year and another 50 points by December 2014. This will translate to a reigniting of rent growth, rising 3.2 percent in 2013 and 4.2 percent in 2014. 4,750 new jobs are expected to be added in 2014, giving plenty of reason for optimism for the region’s investors and operators.

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