What Is A Healthy Industrial Market Vacancy?

02.06.2018

It is easy to view the current low vacancy in the industrial market as a tremendous positive, and in many ways, it reflects general prosperity. But ultra-low vacancy can have both positive and negative side-effects on both the short-term and long-term prospects for the metro area. Low vacancy promotes rent inflation, which is mostly positive when it occurs in moderation. Rent inflation encourages new construction by making property development economically feasible. This, in turn, empowers lending on new construction and is essential to the cycle of cash flow through the economy. The significance of the ability to finance new development is often overlooked, but critical to economic growth.

Some of the adverse effects have to do with the low inventory of available space for local industry or recruitment of outside firms moving into this area. Ultra-low vacancy stymies expansion and job growth. In this environment, in a market, the size of Oklahoma City, excessively low vacancy translates to a limited number of available buildings or spaces within any given size range and more Buyers/Tenants than quality properties.

The actual rate of true industrial vacancy in Oklahoma City depends on who you ask. Everyone generally agrees on the amount of square footage of actually vacant industrial space, but the size of the total industrial base is a little more difficult. For a long time, we considered the entire industrial market to contain about 72 million square feet. That has undoubtedly grown over the last 20 years. The highest current estimate is 120 million square feet, and the low end is 82 million square feet. The difference is your definition of what constitutes an industrial facility. The high-end total market value results in a calculated vacancy rate of 3.9%, meager by any definition. The lower market size calculates a vacancy rate of 5.7%, still low. Reality is probably somewhere around 105 million square feet and 4.5% vacancy.