PEOPLE HAVE ALWAYS been attracted to New Orleans because of how many city elements are just as they were years ago— from the oak-lined streets to the Victorian mansions along St. Charles Avenue.

The exception to that tradition of remembering the past is the Big Easy's multifamily market. The evolution of the sector over the past five years—with a tremendous amount of new construction rising from the rubble of Hurricane Katrina—is unprecedented.

New Orleans is a shining example of a high-barrier-to-entry market. The city is situated on a crescent-shaped tract of land on both the east and west banks of the Mississippi River and bounded by the south shore of Lake Pontchartrain. There is limited land available for development, which keeps the current inventory of approximately 42,000 units in sync with demand.

Occupancy rates have improved this year, though rental rates, averaging $844, remained flat through the third quarter. The metro's occupancy rate of 90 percent is a 2 percentage point improvement since the first quarter and a 3 percentage point increase over the past 12 months.

The metro's inventory is spread out over a five-parish region and consists of 25- to 30-year-old garden developments. But not every parish is created equally. As a result, New Orleans has barriers to entry—and a geography—unlike most markets.

Pulse of the Parishes

The city is undergoing a demographic metamorphosis, and the population gains made by one submarket often come at the expense of another.

The best example is the city's Historic Center. This area of downtown New Orleans continues to see the transformation of 1920s-era office and warehouse structures into luxury residential units. Historic Center monthly rents averaged $1,227 (or $1.43 per square foot) in the third quarter. Select developments are receiving as high as $2.25 per square foot.

There has also been new development on the north shore of Lake Pontchartrain in St. Tammany Parish, a submarket that enjoys the highest per-capita income in the state. Comprising about 3,000 units, the area has transitioned from a bedroom community into a thriving and growing suburb.

Although developers are frustrated by the controlled growth and zoning policies of St. Tammany Parish, existing owners see this as an assurance of stability. Despite three new developments recently introduced to the market, occupancy remained stable at 90 percent, with average monthly rents at $959 through the third quarter.

Unlike St. Tammany, Jeff erson Parish is very large, home to 70 percent of the metro's multifamily inventory (30,000 units). The parish is situated on the east and west banks of the Mississippi River, and the East is fully developed, with limited prospects of future construction. The submarket had an occupancy rate of 92 percent and the average monthly rent is $797; concessions are prevalent.

The submarkets with the lowest occupancy are Eastern New Orleans and Algiers, with about 4,000 units each. The East sustained the greatest amount of damage during Katrina. The current inventory has been rehabbed; however, the stalled redevelopment of the area's infrastructure has caused the market to stabilize at an 80 percent occupancy rate with monthly rents of $693.

The Algiers apartment market was the least damaged on the south shore, but renters who once dominated this submarket have relocated to newer subsidized developments or renovated properties. Monthly rental and occupancy rates mirror that of Eastern New Orleans.

Building in the Core

Over the past five years, thousands of aff ordable and mixed-income units have been introduced to the market, replacements for the units lost during Katrina. Yet the lack of developable land, combined with a great need for aff ordable housing, continues to restrain the amount of new market-rate development.

Market-rate developers have migrated to the higher income submarkets of the Historic Center and St. Tammany Parish.

One noteworthy development in the Historic Center is 930 Poydras Avenue, a 250-unit high-rise located in the center of the city's Central Business District. The property, developed by locally based Brian Gibbs Development, began leasing in the first quarter of 2010 and is already stabilized at 98 percent. The development is commanding an average monthly rental rate of $1.89 per square foot.

Virtually all of the metro's conventional garden development has been confined to St. Tammany Parish. Recent developments include Chapel Creek Apartments, developed by New Orleans-based Isis Development, and Abita View Apartments, currently being constructed by Baton Rouge, La.-based Ball Investments.

Indeed, New Orleans is a dynamic market that continues to evolve. As occupancy improves and concessions burn off , the future looks bright for this historic city.