The COVID-19 pandemic leaves what will be long lasting social and economic changes. Louisiana real estate markets are no exception, although it should be noted that the impacts of the global health crisis were mixed. Where one industry, sector, or region faced significant challenges, another found opportunities.

Meanwhile, the real estate industry is watching a mixture of economic and political factors, particularly a new republican governor and governing coalition in Baton Rouge and a federal government that is rapidly spending money on clean energy.

With this in mind, this overview of Louisiana real estate trends and developments will begin by looking at some of the most pronounced effects of the pandemic, particularly in the hospitality, retail and tourism sectors. Other geopolitical, climate change, and sociocultural forces – including the impact of the Russian invasion of Ukraine on global energy markets – have also had an influence on real estate activity in the state, particularly given Louisiana’s sizeable oil and gas, chemicals, manufacturing and related industries. A number of developments “closer to home”, including emerging legislation and new infrastructure projects, will also be discussed in order to provide a more complete picture of Louisiana’s commercial, industrial, and multi-family residential real estate markets.

COVID-19: One Person’s Challenge Was Another’s Opportunity

For a number of companies, including brick and mortar retailers, restaurants, entertainment venues and nightclubs, hotels, and other tourism-related businesses, the pandemic had a devastating effect on revenues. In many cases, these businesses were unable to weather the storm. In turn, some landlords lost revenue as their tenants’ businesses folded, others agreed to rent abatements or deferrals.

This situation was not, however, universal. In Baton Rouge, for example, after retail occupancy rates hit an eight-year low in 2020, the market rebounded strongly. As of April 2022, 91.2% of leasable retail space in shopping centres of 15,000 square feet or larger was occupied, the highest level since 2018. Among survey respondents, 67% reported vacancy rates of 10% or less, and only 4% of centres indicated that they were more than half vacant. Recent reports indicate that retail vacancy rates have further dropped in Baton Rouge.

For a variety of reasons, including federal and state stimulus programmes, eviction moratoriums, rental supports, etc, many businesses had the flexibility and capacity to (at least temporarily) re-think the ways they served customers and quickly reoriented themselves to the new environment. In mid-2022, as COVID-19 infection rates dropped relative to previous highs and as political and public health officials declared an end to the pandemic, customer demand has significantly increased.

This new environment continues to create opportunities for local and regional business owners – as well as owners and investors from other states – to take advantage of available retail, restaurant, and entertainment spaces. Supply and demand appear to be balanced; despite some of the highest month-to-month inflation rates in recent memory, rents do not appear to be rising excessively. Similarly, lease terms do not appear to have tightened, despite some concerns that landlords affected by recent business closures and an inability to collect rents from some past tenants would try to protect themselves unreasonably.

In the same vein, as in-person shopping fell and retail malls and shopping centres lost anchor tenants during the pandemic, many online retailers saw surges in revenue and customer demand. As a result, some of these brick-and-mortar properties have been torn down while others have been repurposed entirely and are now being used for expanded, centrally located warehouses and fulfilment centres, training centres, medical facilities, and light manufacturing operations. No better project exemplifies this trend than the conversion of the Cortana Mall in Baton Rouge into an Amazon fulfilment centre.

Regional and national buyers of hospitality and hotel projects are also demonstrating increased interest in properties, particularly high-end and boutique projects in the central business district (CBD) and historic French Quarter, Marigny and Uptown neighbourhoods of New Orleans. Recently opened hotels include the Four Seasons Hotel & Residences, the Hotel St. Vincent, Virgin Hotels New Orleans, the One11 Hotel, and the Kimpton Hotel Fontenot. Still other hotels and restaurant spaces (some recently re-positioned and others expected to be re-positioned) have sold over the past year. While short-term rentals continue to face changing regulations, there have been a number of non-traditional hotel projects under development.

Residential Projects are Stabilising and Attracting National Buyers

In the residential real estate market, Louisiana is – to paraphrase Charles Dickens – experiencing the worst of times and the best of times, relatively speaking. According to a March 2022 Bankrate report, housing-price appreciation is among the lowest levels in the nation and mortgage delinquencies are among the highest.

Local housing markets vary widely, of course. According to March 2024 statistics from Redfin, New Orleans and Shreveport home prices were down 7.9% and up 6.1%, respectively, year over year, while Baton Rouge prices were up 1.1% during the same period (after taking a significant cut the year before).

The impact of inflation and, in response, the Federal Reserve’s rate increases, have slowed the residential real estate market. Another significant impact has been the availability and affordability of insurance for all real estate properties (residential and commercial alike). It remains to be seen whether the new administration will be able to address the lack of affordable insurance which is not an issue limited to Louisiana.

One area that is showing signs of strength across the board is sales of high-end condominium projects, particularly as relatively affluent knowledge workers and business owners respond to new ways of doing business that allow for greater remote-work flexibility. The combination of proximity to downtown areas plus increased floor space for home offices has driven purchasing activity for units that meet these requirements.

Major Projects are Taking Off

Construction is surging across the US Gulf Coast, with more than USD25 billion in capital investment in 2023 (USD100 billion since 2016) according to the Louisiana Department of Economic Development. Many of the Louisiana projects are energy-related, including Origin Materials’ USD750 million biomass facility and Renewable Energy Group’s USD950 million improvement and expansion of a renewable diesel production facility, both located in Geismar. Other notable projects include the Strategic Biofuels Louis Green project in northern Louisiana at the Port of Columbia, DG Fuels sustainable aviation fuel facility in St. James Parish and a continued multi-phase effort to widen Interstate 10 in Baton Rouge. Perhaps one of the largest projects in Louisiana’s history is the USD7.8 billion Venture Global LNG facility being developed in Plaquemines Parish.

In New Orleans, major projects include the deal between Tulane University and developers 1532 Tulane Partners, Inc., and SKK Opportunity Zone Fund I, LLC, for the university to occupy nearly 350,000 square feet of New Orleans’ former Charity Hospital. The property will be transformed into a major, mixed-use project featuring apartments, retail space, educational facilities, and other uses. Closed since Hurricane Katrina in 2005, the structure will now serve as a lynchpin in a major expansion of properties in the city’s biomedical corridor.

In addition, the Four Seasons Hotel & Residences, together with the affiliated Vue Orleans cultural attraction and observatory, continue to effect transformative change of the riverfront at the foot of Canal Street, with the renovation of Spanish Plaza nearing completion and the construction of a new floating ferry terminal well underway. Also in New Orleans, the Ernest M. Morial Convention Center is in the middle of a five-year, USD557 million capital improvement project that aims to revitalise 47 acres of land upriver of the centre. The developers of that project are working to bring new dining, retail, entertainment, and other venue options within walking distance of the CBD.

Top Legislative and Executive-Branch Issues

For professional associations and lobbying groups in Louisiana, 2021 was a significant year for passing and defeating legislative proposals that would impact the state’s real estate market. Among other significant wins (from an industry perspective) were the passage of an amendment to the state constitution that simplified the collection of sales taxes, and the approval of laws regarding real estate licensing renewal designed to protect consumers and licensees. In 2022, a significant focus was on creating a more robust insurance market, with a special session called to create a significant financial incentive for insurers to offer property insurance in Louisiana. 2023 legislative outcomes included bills to grow the insurer market, support infrastructure assets including funding ports, address carbon capture and offshore wind and further develop state-wide economic incentives. The first 2024 legislative session focused on addressing crime and the second legislative session is shaping up to include a significant number of bills to strengthen the governor’s power.

Lastly, the Industrial Tax Exemption Program, a tax abatement programme, is being closely watched. Although its use was limited under the prior administration, the new governor has implemented a number of changes to loosen requirements and change the local approval process.

Climate Change a Concern, but Resilience and Opportunity-Seeking are Ingrained

Severe weather events are on the rise globally, however 2023 was a relatively calm storm season.

That said, for most of its recorded history, Louisiana has been subject to extreme weather. Endurance and nimbleness are built into the culture of the region and, in recent years, a number of coastal resilience initiatives have been put into motion to reduce the impact of hurricanes and related flooding. Federal and state legislation – including the federal Infrastructure Investment and Jobs Act, which directs USD492 million to the NOAA National Coastal Resilience Fund, among other programmes – has focused on restoring or expanding natural infrastructure such as wetlands and barrier islands that can reduce the devastation caused by major storms.

Further inland, projects such as the USD225 million Five Bayous Project and the USD343 million Diversion Flood Control Project are designed to limit storm-related flooding along major drainage canals and rivers in the Baton Rouge area.

One of the most significant areas for potential growth and investment in Louisiana is carbon sequestration. The state is a natural fit for activities related to the capture and storage of CO2, for several reasons.

• Louisiana is already home to a highly developed oil, gas, and chemicals production, refining, and distribution infrastructure, much of which could be easily repurposed to redirect CO2 and related byproducts into short- and long-term storage. Carbon sequestration projects that relied on conversion of existing facilities would be significantly cheaper than acquiring land and building new operations.
• From a geological perspective, much of the state is situated over geological formations known as salt domes and over subsurface porous spaces (or “pore spaces”), some of which are naturally occurring and others that are the result of previous petroleum and natural-gas extraction. Currently filled with saline water, these spaces could take advantage of emerging storage and sequestration technologies.
• The Louisiana state and federal governments have a long history of working collaboratively to manage underground wells and to protect drinking water from extraction and injection activities. The US Environmental Protection Agency (EPA) has granted the Louisiana Department of Natural Resources primary authority, or primacy, to administer Class I-V wells, and EPA recently approved the state’s application to manage Class VI wells, which are used for the injection and geological sequestration of CO2.
• Louisiana’s existing legal framework (including the Louisiana Geologic Sequestration of Carbon Dioxide Act, the Louisiana Civil Code, the Louisiana Mineral Code, and other statutes) has established processes that enable parties to obtain pore-space, salt dome, and other ancillary rights relating to carbon sequestration.

Taken together, Louisiana can act as a closed-loop provider of CO2 sequestration for industrial and manufacturing activities within the state, and provide related services to facilities outside its borders.

Conclusion

If anything, the last several years have demonstrated the wisdom of exercising caution when peering into the real estate crystal ball. The COVID-19 pandemic continues to ripple across the country, inflation may persist for the remainder of the year, supply chain disruptions and labour shortages remain, and a new season of severe weather events is on the horizon.

Louisiana, however, is the product of overcoming challenges and seizing opportunities in the face of even the greatest adversities. This can-do, creative spirit is perhaps the region’s greatest strength and is likely to foster an active, growing real estate market in 2024.