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The Baton Rouge-area commercial real estate market in 2025 is expected to closely resemble last year’s market, according to Jonathan Walker of Maestri Murrell.
That’s due partly because the Fed is expected to make fewer rate cuts this year than was previously forecast, Walker says.
“The cost of construction, high insurance rates and high borrowing costs are going to continue to stall new construction because it’s so expensive to build,” he says. “I think we’re going to continue to see a shift toward leasing existing facilities, whether retail, industrial or office.”
Elfin Realty’s latest numbers, released at the end of November, show commercial sales in 2024 were on pace to reach their lowest level in nine years.
Occupancy rates will either hold steady or rise because of the lack of new supply going on the market.
Walker says there has been little new supply in the market for the last two years, and he expects this trend to continue for at least the next year.
“You’re going to see more people going to buy an existing facility that’s already partially or fully leased and have that as an investment property,” he says. “When you go in and buy and build something, then you’ve got to command the highest rental rates in the market.”
Retail property values reached their highest mark in eight years at $285.11 per square foot at the end of November, according to the latest figures.
The ripple effect of new construction continuously stalling in an area is not entirely negative, Walker says, because Baton Rouge avoids some of the market volatility larger areas such as Houston endure.
A recent trend is that new commercial construction usually takes place when a tenant is already planned for the space.
“You might have some space next to it that’s speculative, but you don’t have investors,” Walker explains. “You don’t have lenders doing those speculative deals in our market where they’re just going to build it and cross their fingers and hope it gets leased up at some point.”
Another trend is that the market is seeing an increase in discount users and service industries.
Walker says good deals are still available in centers for tenants looking to expand.
One challenge for existing landlords is refinancing their real estate holdings, which can affect their cash flow. Most commercial loans come due every five years, and landlords in a high-interest environment may be affected.
“It was maybe a little bit of a surprise of not having the interest rate bump down as much as we originally thought, and it’ll be more of a shift toward leasing as opposed to new construction,” Walker says. “I think we’re going to continue to see that for the next 24 months.”
