As president and director of office leasing at Corporate Realty, Siegel has been at the center of many of the area’s biggest real estate brokerage transactions, negotiating leases with downtown’s heavy-hitting commercial tenants including Tulane University, Capital One Bank and major law firms that have been CBD mainstays for decades. His portfolio of investment transactions includes Place St. Charles — Corporate Realty’s New Orleans home. From this vantage point, Siegel shares his perspective on what’s driving the city’s commercial real estate market downtown.
How would you describe the current state of commercial real estate downtown, and how did we get here? What COVID did was accelerate and exacerbate some of the trends that were already taking place downtown. If you go back 25 or 30 years, we have a smaller office market today than we did in the mid-1980s to early 1990s. So many of our office buildings and other structures have been converted to alternative uses: apartments, condos, hotels, etc. That’s nothing to do with COVID — that’s been going on since the World’s Fair in 1984. On one hand, we have had this shrinking office market, but on the other hand, we had this amazing supply of historic buildings, coupled with historic tax credits, coupled with growing demand for people who wanted to live downtown, and hospitality demand. So, basically, our CBD over the last 30 years has gotten re-tenanted — not necessarily with office tenants but with alternative uses.
In certain respects, it’s more vibrant, more interesting. It is a CBD that many cities would aspire to have because we’re a real mixed-use downtown. We’re not just an office district where at 5 or 6 o’clock you turn out the lights. You have world-class hotels, restaurants, great apartment buildings. There’s a quality of life and the things that make people want to be downtown — whether it’s to live or work or play — in abundance.
Are people coming back to the office post-pandemic? People in New Orleans are back at work, much more than in a lot of other major markets. The big companies, the corporate tenants are not necessarily back in full force, and they’re doing flex space. If you look at New Orleans, the law firms, accounting firms, brokerage firms that populate downtown, they’re back at work. Even within those groups, people got used to some level of working from home. There’s more demand on employers for flex time. I don’t know where all that’s going to shake out long term, but it has impacted the office market, office demand, how much square footage people want to lease.
I don’t think this is the end of office space as we know it. I think there is a reason people go to an office. You’re more efficient and more effective in your office. My line is, ‘How do you build a company? How do you build a culture if people aren’t together at all?’ I don’t think COVID changed the dynamic so much that there won’t be any demand for office space. I think it changed people’s expectations a little bit, accelerated the trend of a changing CBD, and I think it’s going to continue to change. We may end up with a few more buildings that aren’t destined forever to be office space and might be alternative uses. Buildings became functionally and economically obsolete for what they were before, and it may happen again. But there will be a demand for office space.
What are tenants looking for in office space? Have their wish lists changed? Years ago, people built offices to bring clients in. I think office space is about employee recruitment and retention — it’s about quality of life for your employees. More amenities in the building, security, having a good conducive workspace. We’re all much more concerned about those things, as we should be. That’s not new, but COVID really exposed some of that. Want to get your employees back? Give them a good place to work.
A lot of tenants are looking for more flexibility relative to the lease term, a quicker, easier process to get into their office lease… more spaces that are rent-ready versus spending an inordinate amount of time building space. Not every tenant — a major law firm will do a long lease because of the capital cost to put in their space, a big corporate tenant will do a long lease because they’re going to spend a fortune on their space and you can’t do a short lease. But for smaller and up to medium-sized tenants, flexibility is becoming more important.
How have commercial rents been affected? We think of price largely being driven by supply and demand whether you’re buying a car, or widgets, office space, travel… We don’t have a lot of office demand, but prices are still going to have to go up. The cost to create, maintain and finance the product has gone up. Insurance costs are double or triple, minimum wage and the cost of paying people have gone up substantially, the cost of construction has doubled, interest rates have doubled. But rents have stayed the same. Owners can’t continue to get the same rents they got 20 years ago. I think we are going to see an increase in rents because of the underlying economics of owning and operating real estate in general and office buildings specifically. If not, it makes no sense for landlords, for office building owners to continue to own office buildings.
We’ve been at the same level, plus or minus, for 15 years. Retail rents, like Magazine Street where there’s high demand, have gone up a lot over the years. I don’t think they are so far out of whack. Office rents are just embarrassingly low. We’re the cheapest office market around the country — cheaper than Baton Rouge and Birmingham, Jackson… Rents will go up not because of supply and demand but because of the underlying economics of owning and operating and maintaining and servicing office buildings and office space.
Are we still seeing historic tax credit projects? Yes, very active. I have some issues with the recent moratorium on short term rentals — it is one of the big demand drivers downtown. I do believe we need a lot more workforce housing in this city and that a lot of the workforce housing probably got taken over by short term rentals. But that’s not the case in the CBD. We still have buildings that could take advantage of demand and historic tax credits. They are still the biggest driver of getting our older buildings renovated. Dozens and dozens have gotten renovated, and the only way the economics make even marginal sense is with the state and federal historic tax credits.
What have been the biggest wins downtown in the last few years? The Four Seasons getting opened. Getting that after [the building] being empty for 20 years is nothing short of miraculous. The [Caesars] Superdome is in the midst of almost a $500-million renovation. This will keep it not only relevant but make it world class and where it can continue to attract events like the Super Bowl, Final Four, etc., for another generation or longer. That’s a big deal. The redevelopment of Charity [Hospital]. That building has been empty since Katrina… It’s a million square feet of empty space, magnificent in a lot of respects. Tulane is the lead tenant; it’s another $400-million-plus development that Tulane is going to anchor. It’s going to be the catalyst for a lot of additional redevelopment of that medical district. A big part of what Tulane is taking in there is research space, not just leasing space but economic development. And that’s just part of it. It has been a slower process than I would have liked, but I think there’s real traction to get started in the not-too-distant future. Again, that’s private sector and wouldn’t happen without historic tax credits. The Convention Center redevelopment of their 40 acres on the upriver side is another half-billion-dollar development. It will create a whole new neighborhood. That’s probably a 10-year buildout, a series of six to eight projects. I think we will see dirt being turned before year-end.
Why do you love downtown? My entire career I’ve worked downtown. I like the vibe of downtown in general, being able to walk to multiple places, the diversity in terms of the number and different types of places. I can walk into the French Quarter, and I’ve got 40 restaurants within a half dozen blocks. All these hotels and great bars and clubs… Or walk up Julia Street with the art galleries. When basketball season is going, you can have a drink, something to eat, walk to the arena then back to the car – where do you do that in other cities? We have these amazing attractions – most of which are downtown.
What are downtown’s biggest challenges? Crime. On balance, downtown doesn’t have an inordinate amount of crime. It’s pretty good, but everyone is concerned about crime and rightfully so. The city needs to get their hands around it. Everybody needs to pull in the same direction… This is something we need to make strides on getting better and work on it every day and make some real improvement. There’s a lot of other things you can work around, but we need to deal with crime.
What are the keys to helping downtown grow? When I think about the office market here, I think about how it’s evolved. The fact is it’s a smaller office market than it was. There’s no disputing it. There’s still demand. But if you think about the office market and office buildings as the anchor of downtown, it’s changed. It has largely gotten better because it’s such a more interesting place than just having a bunch of office buildings and office workers.
New Orleans has always had a bright, vibrant office market, whether it was shipping related, oil and gas, the legal community… and we still do. With the new workforce, where in theory you can live anywhere and a lot of jobs are mobile, New Orleans should be the place of choice for companies that want to have a workforce that can come into the office some. We can attract those kinds of workers. I think we have done a good job of building an entrepreneurial community that can grow. But we need to also attract more new companies from outside. We have a lot of the bells and whistles they want in terms of the quality of life and being an interesting place to live. We’re such a small market, a few moves here would be spectacular. It moves the needle. If you get somebody moving into Chicago or New York or Dallas, and they take 50,000 square feet, they might get a single line in the paper for one day. If that happens here, we’ll have a parade. It will be on the front page.
We need to make a concerted citywide wholesale effort to attract new businesses, not just retail establishments. I remember a couple of years ago people celebrating a new retail store on Canal Street. It’s great. But what about getting a company here that takes 10,000 square feet and will hire 25 people? Retail and some of this other stuff is a lot sexier, but if you attract new businesses here, you have people that are making money, paying taxes, shopping, priming the economy, going to these restaurants. You can open all the stores, all the restaurants you want, but if there’s not people making money, who’s going to go to them? I don’t want us to become just hospitality and tourism. I don’t think that’s as healthy. We need a white-collar workforce to eat at the restaurants, put their kids in the schools.
That’s what I think the city and community and economic development groups should be focused on: attracting new businesses… and making sure the existing great tenants we already have feel the love and stay here. If we can combine our amazing hospitality and tourism community with a more vibrant office market, one that is as proactive and aggressive in chasing new companies to move here as we are in chasing leisure travelers and conventions, it would be amazing.
