[BTinSF]

II City Plaza (Construction to begin this year)

Baton Rouge, La.
Demand for Space Remains Robust
By MAURA WEBBER SADOVI

July 12, 2006; Page B8

Baton Rouge's commercial real estate is still benefiting from the aftereffects of Hurricane Katrina. An estimated 235,000 evacuees initially sought refuge in apartments and homes, while businesses snapped up office and warehouse space in the Louisiana capital city region, just 90 miles northwest of New Orleans.

The migration of people, government agencies and companies into the inland region initially helped absorb 649,303 square feet of office space in the East Baton Rouge Parish that includes the city, according to Branon W. Pesnell of NAI Latter & Blum Inc., a real estate services firm with offices in New Orleans and Baton Rouge. Empty apartments are still scarce, and the industrial market saw the amount of space leased rise more than fourfold to 2.2 million square feet in 2005 from the year earlier, according to the industrial trends committee of the Greater Baton Rouge Association of Realtors.

Baton Rouge's role as a staging area for relief workers and engineering companies orchestrating the reconstruction of New Orleans has accelerated the city's decades-long transformation into an economic and political center that could eclipse New Orleans, says Stephen Moret, president of the Baton Rouge Area Chamber of Commerce. At the same time, he adds, the Big Easy's recovery is crucial to Baton Rouge's health.

The shift is occurring as some companies that formerly had more employees in New Orleans are boosting their work forces in Baton Rouge. "Firms with larger regional headquarters in New Orleans and satellite offices in Baton Rouge are doing a flip-flop," says Mr. Pesnell.

As many as 50,000 of the initial evacuees from the New Orleans area are expected to remain in the area permanently, the chamber estimates. The area's population could rise as much as 13% to 830,000 at the close of 2008 from prestorm levels in 2004, as Katrina-generated jobs in the Baton Rouge area help attract more residents. Job growth in the metropolitan area has also been robust, at 4% in May from the year-earlier month, nearly three times the national average, according to the Bureau of Labor Statistics.

As the one-year anniversary of the storm approaches, some of the shorter-term office and warehouse leases are expiring, though vacancies in those two sectors plus apartments remain significantly lower than before the storm. Meanwhile, developers are gearing up to meet the increased demand. Even the retail sector, the least affected by the storm, is expected to see new store space developed faster as a result of Katrina-related demand, says Tom Cook, a partner at Cook, Moore & Associates, a commercial real estate appraisal firm.

Among the larger projects on tap is II City Plaza, slated to be one of the first high-end nongovernment office buildings to be built in downtown Baton Rouge since the 1980s. Demand from financial institutions and law firms has pushed Wampold Cos., of Baton Rouge, to fast-track its plans for the building, which could be as large as 280,000 square feet. Mike Wampold, the real estate development and management company's chief executive, says he is working to prelease about 160,000 square feet of the space in hopes of starting construction as early as the fourth quarter. Like many developers, Mr. Wampold says the financial incentives offered by the Gulf Opportunity Zone Act of 2005 have sweetened the project's financial prospects.

The big question remaining: How much of the increased demand for space will stick over the long term? Annual new-apartment completions in the area could jump to 1,000 over the next three years from a pre-Katrina rate of about 600, says Mr. Cook. A potential oversupply may make that sector particularly vulnerable, as more government and storm-related construction workers leave town.

Edward Kramer, a developer with Palm Hills Development in Baton Rouge, says he is following through on prestorm plans to add to an existing 203-unit complex located in southeast Baton Rouge, but otherwise will remain on the sidelines of the apartment market. "If everyone moves out," he says, "we're not going to need all the additional real estate we've developed."

Write to Maura Webber Sadovi at maura.sadovi@wsj.com1

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