HVS Market Pulse: Baton Rouge, LA
Baton Rouge, aka the “Red Stick,” was so named by 17th century French explorers who came upon a native boundary marker at the top of a bluff, in the form of pole painted red. Now the capital city of the state of Louisiana, Baton Rouge is also the seat of East Baton Rouge Parish and the political hub of Louisiana.
Demand drivers in East Baton Rouge’s hotel market include manufacturing, petrochemical, construction, distribution, medical, and research entities, as well as state government operations. The following HVS Market Pulse article looks at recent developments in Baton Rouge’s major business sectors, including the effect on the local hotel industry.
Economic Drivers and Industrial Development
Fitting for its nickname of the “Chemical City,” Baton Rouge has the nation’s third-largest refinery, the largest concentration of chemicals-related employment in the state, and a strong job base in industrial construction. Petrochemical company expansions have created a massive amount of new construction in East Baton Rouge, with $8 billion in industrial developments announced in 2015 alone.
Prominent projects in the parish include a $125-million, 18-mile crude-oil pipeline connecting the Port Hudson facility to the ExxonMobil refinery that was completed by Genesis Energy in 2015. A new $150-million import/export terminal at the Port of Baton Rouge is expected to become operational by the end of this year. Phase I of Dow Chemical’s $1.06 billion polyolefin plants was completed in 2015, with Phase II scheduled to be complete by the close of 2016. In addition, Honeywell expanded its Baton Rouge site last year.
Projects yet to come include the construction of a $20-million material reprocessing facility, the relocation of ClearEdge Wholesale Glass from New Orleans, and the development of Glaz-Tech’s $4-million glass manufacturing plant.
Port of Greater Baton Rouge
One of the draws for businesses is the area’s transportation network. Located on the eastern bank of the Mississippi River, Baton Rouge offers the nation’s tenth-largest shipping port, railroad freight service, a metropolitan airport, and a network of interstates and highways, making the area favorably suited for trade, logistics, and distribution.
The parish’s recent economic growth stems especially from increased activity at the Port of Greater Baton Rouge. According to the U.S. Department of Commerce, in 2014, exports from the Baton Rouge region were up 20% from $6.2 billion in 2013. This ranked the Port of Greater Baton Rouge 42nd among the largest export markets in the nation.
The petrochemical industry makes up more than half of the exports from the port; the recent expansions at Dow Chemical Company, BASF, and Shintech have significantly contributed to the port’s overall output. Port officials reported that grain exportation was another major contributor to growth, following the $150-million upgrade and expansion of a grain and oilseed elevator by Louis Dreyfus Commodities in October 2013, further supporting the exportation of Louisiana farm products.
A number of improvement and expansion projects at the Port of Greater Baton Rouge are reinforcing its economic impact on the parish. A $2.5-million construction project to improve rail access to the Inland Rivers Marine Terminal began in 2014. Union Pacific Railroad’s $19.6-million rail-expansion project is anticipated to accommodate unit trains with 100 railcars. Genesis Energy’s $150-million oil-storage and import/export terminal, which opened last year, is expected to accommodate 33 million barrels of crude oil and other petroleum products annually, generating up to $2 million in annual revenue to the port. Finally, the port’s general-cargo dock ship fender system recently underwent a $5.1-million rehabilitation.
A period of redevelopment in Downtown Baton Rouge began with the Capitol Park Master Plan in 1990. The Old State Capitol was renovated and reopened in 1994 as a historical landmark. The first phase of the Riverfront Development Plan, which included the fortification of the levee and the aesthetic improvement of the riverfront, was also completed in 1994. More recently, the Downtown Baton Rouge Arts & Entertainment District, created in 2008, features retail stores, restaurants, and galleries. The construction of the Downtown River Center Library is on track to begin in October 2016, with the new library scheduled to open for an August 2018 inaugural.
A total of $2.12 billion of public and private funds have been invested in Downtown Baton Rouge redevelopment over the past two decades, with $1.27 billion invested since 2010. So far into 2016, nearly $1 billion dollars has been invested in 41 projects under construction or in the planning stages.
Office, Residential, and Mixed-Use Development
The IBM Services Center, a $55-million mixed-used development, opened in 2015 and represents the first high-rise riverfront project in Downtown Baton Rouge in more than half a century. The structure currently accommodates approximately 200 employees, although it is expected to house over 800 by 2017. Louisiana State University has undertaken a phased development of a 35-acre Water Campus, which will house the university’s Center for River Studies, the Water Institute of the Gulf, and the state Coastal Protection and Restoration Authority.
In the residential sector, recently completed projects include the Maritime One luxury apartment building, 525 Lafayette, and 440 on Third. Major residential projects under construction in 2016 include Belvedere Townhomes and Onyx Residences on Third Street. Additionally, the 336-unit Perkins Rowe Village development is scheduled to begin construction in June 2016 and to have apartments ready to lease by spring of next year.
Health Care, Technology, and Education
Notable medical facilities in East Baton Rouge include Our Lady of the Lake Regional Medical Center, the Baton Rouge General Medical Hospital, the Mary Bird Perkins Cancer Center, and Pennington Biomedical Research Center. A $40-million expansion of the General Medical Hospital was completed on the Bluebonnet campus in 2014. A 130-bed, $200-million Children’s Hospital is under construction with an estimated opening by year-end 2018. The Mary Bird Perkins Cancer Center received a 14,000-square-foot chemotherapy suite and an 8,149-square-foot imaging center in 2014. Furthermore, Our Lady of the Lake Regional Medical Center, the largest private medical center in Louisiana, recently opened a 120-bed Heart and Vascular Institute and a new children’s emergency room.
Baton Rouge has realized extensive growth in the technology sector over the past two years. IBM remains the area’s technology giant, though many other tech companies have arisen in the market. Stixis Technologies recently opened its first U.S.-based software center in Baton Rouge, creating 230 jobs. EDgear recently opened its own software development center, and Qualytics Consulting, a software-testing company, has also made significant investments in the area. Additionally, the Baton Rouge Area Chamber reported that more tech companies have applied to join the Baton Rouge based Louisiana Technology Park.
Baton Rouge is also home to Louisiana State University (LSU) and Southern University, two major state universities, along with Baton Rouge Community College, one of Louisiana’s largest community colleges. These institutions generate hotel demand from graduations, orientation visits, visiting professors, and sporting events.
Meetings and Events
Located on the banks of the Mississippi River, the Baton Rouge River Center is a municipally owned, multi-purpose facility with over 200,000 square feet of space. The $19-million renovation of the center was completed in 2011, adding a newly upgraded, 70,000-square-foot Exhibition Hall to the existing Grand Ballroom, Arena, and Theatre for the Performing Arts.
The center hosted more than 300 events each year from 2008 to 2014. In 2015, the number of events declined, but the Louisiana Marathon and Bayou Country Fest generated a significant volume of attendees. Convention and Visitors Bureau officials report that high-school academic competitions represent a new source of demand; in addition, the United States Bowling Congress Women’s Championships will return to Baton Rouge in 2017.
As of August 2016, operational hotel supply in Baton Rouge comprised approximately 71 hotels and 8,600 rooms. Roughly 94% of these hotels belong to a brand or a major parent company, with the remaining 6% operating as independent hotels.Hilton Worldwide, InterContinental Hotels Group, Marriott International, and Wyndham make up over 60% of market share in Baton Rouge.
Overall, new hotel development has been on the decline since the recession of 2008/09. Six hotels opened between 2010 and 2013, none opened in 2014, and only one, the Holiday Inn Express Baton Rouge Downtown, opened in 2015. Currently, lodging supply in Downtown Baton Rouge stands at five hotels with nearly 900 rooms.
According to local officials, four new hotel projects were under construction as of September 2016. The Americas Best Value Inn, Autograph Collection Watermark Baton Rouge, and the Candlewood Suites Baton Rouge are scheduled to open in the fourth quarter of this year, with the Home2 Suites by Hilton on track to open in the first quarter of 2017. Additionally, construction is expected to begin on a proposed Courtyard by Marriott before the end of 2016.
As of the end of 2015, market-wide occupancy in Baton Rouge was nearly 63%, with an overall average rate of $85 and RevPAR at $54. Over the past two years, Baton Rouge’s economy and hotel industry have been affected by the downturn in oil and gas prices and an unprecedented flood in August 2016 that devastated many parts of the city.
Several oil and gas lodging markets within the river parishes were severely hit by the downturn. However, reduced gas prices fueled an industrial expansion in chemicals and LNG export terminals in East Baton Rouge. Furthermore, the diversification of the market’s economic drivers has mitigated the impact of reduced demand from the oil and gas sector, resulting in just a modest impact on demand and occupancy. The severity of the flooding in August 2016 has drawn displaced residents and relief workers to local hotels, and demand and occupancy are expected to rise in the Baton Rouge market in the second half of 2016.
The Baton Rouge hotel market continues to strengthen, albeit at a moderate pace. The drop in demand from the oil and gas industry and the impact of new supply on overall occupancy create a cautionary outlook for the area in the near term. Developments in the public and private sectors, however, as well as ongoing industrial expansions, are anticipated to bolster the local economy and hotel performance in the long term.