So many variables exist in the Baton Rouge rental market, it would aggravate a gaggle of math geeks.

The population in the Baton Rouge metro has grown by about 30,000 since 2005. Most of those individuals are evacuees of Hurricanes Katrina and Rita who went looking for higher ground. The demand for rentals is there, with one local analyst reporting a vacancy rate of 1.6 percent for the market as of spring 2008. But for how long? It’s not known how many people will end up staying.

Then there’s the area’s job market, which right now is looking sunny compared to the rest of the nation, helping to boost the Baton Rouge apartment business.

Also, keep in mind that few of the developments going up are your middle- of-the-road multifamily product. Virtually all have been upscale apartment communities, including most of the student housing projects. On the other end of the income scale, a number of affordable housing projects have been built or are in the works, thanks to Gulf Opportunity (GO) Zone lowincome housing tax credits.

That would suggest that opportunity exists in the middle of the income spectrum with tenants who earn too much to get into affordable communities but can’t afford to live in luxury apartments. That might sound good initially, but what it means is that luxury developers are feeling some pain, according to data from Cook, Moore & Associates, a Baton Rouge-based real estate appraiser. Wesley Moore, a partner at the firm, said he is already seeing “free month with 13-month lease” concessions offered at a number of luxury properties.

If your head is spinning, let’s go back to the beginning of our equation: The population of Red Stick, and how that is affecting the market.

The variables

Since the population increased by 30,000 people (that’s roughly 11,000 households), according to Cook, Moore & Associates, apartment vacancies remain low. Prior to Hurricane Katrina, the Baton Rouge Apartment Association (BRAA) reported a citywide vacancy rate of 8 percent. The Louisiana State University (LSU) Real Estate Research Institute and Cook, Moore & Associates estimated that the market was even tighter, with a vacancy rate of 6 percent in spring 2005. Following the storm, both survey sources reported a vacancy rate of less than 1 percent. Demand is still strong more than two and a half years later: LSU and Cook, Moore & Associates reported a 1.6 percent vacancy rate in the Baton Rouge area this spring. Reis, Inc., a New York City real estate research firm, recorded a higher vacancy rate of 3.8 percent. That figure could include the surrounding area of Baton Rouge.

It is reasonable to think that those who settled temporarily in Baton Rouge after leaving New Orleans and other Gulf Coast cities will return to their homes or relocate elsewhere. And with more units coming online in the city between now and 2009—that number could exceed 5,000 units, and most of the units are geared toward the affluent— the vacancy rate is expected to creep back up. Owners will likely offer more concessions to attract tenants.

Still, how many might leave the Baton Rouge region is up for debate. The economy is looking so good in the Louisiana capital, it could tempt some to stay for the jobs.

“Our economy is booming, particularly along the Interstate 10 and 12 corridors,” said Tom Pate, an associate in the Lafayette, La., office of Marcus & Millichap. “People are borrowing money. Regional banks are as strong as they’ve ever been. The high oil prices have been a boom for this region. When oil and gas prices are high and the interest in oil exploration is high, a lot of people are working at above-average wages. That means more disposable income.”

The weak U.S. dollar is a good thing for the region’s petrochemical industry and Baton Rouge’s port, said Executive Editor JR Ball in a recent column in the Greater Baton Rouge Business Report.

“The products those plants produce and sell are so cheap against foreign currency that other countries get quite the bang for their ruble, euro, yen, and yuan,” Ball wrote. “And those products get to Russia, Europe, Japan, and China via our port.”

All these positives are getting a boost from the public sector. No other state capital city in the nation has more per capita government jobs than Baton Rouge.

Check your answers

So what’s wrong with this math? The aforementioned glut of rentals that is expected to hit the market in the next two years. The reason for the significant amount of construction is that developers in Baton Rouge will have to have their certificates of occupancy in place prior to Dec. 31, 2008, in order to take advantage of GO Zone credits. A number of the GO Zone projects include market-rate units as well as affordable ones. As supply increases, vacancies are forecast to return to levels in the 7 percent to 10 percent range, according to a report from Cook, Moore & Associates.

On the condo front, things have slowed considerably. Roughly 2,100 condo units are either built, under construction, or planned for the metro area through 2009.

Counteracting these negatives is the tighter lending market, which could prevent apartment dwellers from purchasing homes. The Baton Rouge area overall has been weathering the mortgage crisis better than the rest of the country. The number of subprime mortgages is high, but the delinquency and foreclosure rates are fairly low.

Pate of Marcus & Millichap remained optimistic.

“The outlook in Baton Rouge over the next 18 to 24 months is considered very good,” Pate said. “The economy is moving well. Oil and gas exploration is predicted to increase over the next two years because of the unfriendliness of other nations where there is oil exploration going on. Those American companies [in those countries] will likely come to the Gulf of Mexico. The problem has been that this is a very expensive place to do exploration. But because of the cost of energy, it is no longer viewed to be as expensive.”