Mita Investments LLC has purchased a one acre site at the northwest corner of NW 178th and N. Pennsylvania. Seller was Valencia Commercial Land LLC. The site is part of a larger development encompassing over 20 acres. Plans call for additional commercial pad sites to be sold along NW 178th and on N. Pennsylvania. The site purchased by Mita Investments LLC is zoned for retail use. All of the frontage on both streets is also zoned for retail use. The site sold for $648,960. Cordell Brown, CCIM, CIPS, with the Investment Division of Price Edwards & Company handled the transaction. Carla Curts with Capital Abstract and Title Company handled Closing.
The lingering question for the Oklahoma City office market is “Where’s the bottom?”. The first half of 2010 suggests that perhaps it is now for the suburbs. Unfortunately that may not hold true for the Central Business District as that submarket still faces the impact of Devon Energy’s relocation to its new headquarters building in 2012. A move that will place over three-quarters of a million square feet of vacant office space back on the market.
The good news for the suburbs comes not so much from the first-half results as it does from increased activity and a renewed level of commitment from local tenants. The results of that increased activity should become evident in the next few months as we anticipate suburban vacancy rates will begin to drop. It is also worth noting that many tenants who were signing one-year extensions to their leases while they waited out the economic downturn are now back to extending their leases to three to five-year terms. That increased level of commitment seems to have arisen from a renewed confidence in their own ability to function in these tough economic times and also to take advantage of a market populated with landlords aggressively seeking quality tenants with attractive lease incentives and reduced rents.
Increased occupancy and the resultant increase in rental rates in the suburban markets in the next two to three years could prove to be just the right tonic for the CBD at a time that will coincide with Devon’s vacancy of approximately 840,000 square feet. As large space options become scarce in the suburbs, many users will seek downtown options; a scenario that has played out several times in the past twenty-five years. By that time, the Project 180 improvements to streets and sidewalks will increase downtown’s accessibility and appeal. And, if Devon sells its corporate headquarters building to a user outside of Oklahoma City as anticipated, the net effect of Devon’s relocation will be greatly mitigated.
The local market experienced negative absorption of 91,000 square feet in the first half of 2010, but the bulk of that (77,000 square feet) occurred downtown. The Northwest submarket, which has typically been a bell cow for the market both in terms of market trends and new construction, actually experienced positive absorption of 58,000 square feet and we anticipate similar growth the rest of the year. The overall vacancy rate increased from 17.1% to 18.0%. The Central Business District’s vacancy rate rose from 24% to 25.4% and the suburban vacancy rose from 13.6% to 14.1%. The Northwest submarket, which is the largest in the suburbs, saw vacancy fall 14.9% to 13.6%.
The remainder of 2010 will continue to test the market, but we are confident current leasing activity will translate to positive results. Many landlords, who were once trying to hold the line on rental rates are now instituting aggressive leasing campaigns that are getting tenants off the sideline and into the game. While that aggressiveness certainly helps, real improvement will not occur until the local and national economies improve and jobs are created. Economic experts seem unable to agree on when that might occur and we certainly won’t pretend to know.
All results should be reviewed in the proper perspective and it should be noted that the Oklahoma City market is performing near the national average of 17.4% vacancy and should hold up favorably as we did not have much of the over-heated development seen in other markets around the country. Many southwestern markets such as Austin, Dallas, Phoenix and Las Vegas became bloated with new construction and now have vacancy rates well in excess of 20%.
Here is the progression: 2008 was a shock, 2009 was depressing, 2010 is a year of hope; and, perhaps, 2011 will be a year of action. Virtually everyone – owners, retailers, brokers (okay, maybe not bankers) – feels better about the economy and where the retail market is today. No doubt, part of this hope is fueled by the belief that 2009 saw the bottom of the recession and the retail market. We’ve pulled back from the precipice and adjusted to the realities of the marketplace. Nationally there has been some good news: GDP growth is up slightly, unemployment is down slightly, corporate earnings have generally been pretty good. Consumers are gradually starting to think good thoughts (see the ICSC consumer survey results on the back cover). National retailers have gotten lean and generated better operating numbers by reducing inventory, downsizing staffs, closing unproductive stores.
National and regional retailers are dusting off expansion plans and beginning to look forward. This is confirmed by the significant increase in interest we’ve seen from the retailers we represent as well as the activity at properties we lease. Most of the interest is cautious and in preliminary stages at this point, but it’s a good sign retailers are talking and beginning to look for space. Our sense is that if retailers begin looking now, it will be for deals in 2011 and 2012 although a few may get done this year.
Our hope is tempered by a lingering sluggishness in the general economy. Despite the positive economic trends, the amount of national debt, state government funding problems, stubbornly high unemployment, and the continued shake-up of large parts of our economy – health care, environmental regulation, financial regulation – continues to create uncertainty. As we’ve discussed in prior reports, uncertainty acts as a drag on consumer spending. Consequently, we see a period over the next 18 months of good news and progress intermixed with setbacks. Two steps forward and one step back if you will. It just won’t feel like we’ve made great strides but at the end of 2011 we’ll look back and see that the market improved markedly and that we are poised for significant growth.
In this interim period, let’s review a few trends taking place in the retail market. Restaurants and discounters have been the most active retailers over the past year; expect this trend to continue. Many second tier retailers are realizing that they can, because of vacancies and lower rates, acquire locations that they could never have had access to in a strong market. This window is closing and these retailers will need to act. Large box vacancies being taken off the market are generally leased at rates 30 to 50 percent lower than the previous tenant and to tenants that are a lower quality credit. Additionally, most national and regional tenants are not exercising renewal options which contain increases but are negotiating new deals to stay at existing or reduced rates. This window is closing as well, but slowly. As a result, 2011 may be the worst year yet for owners given the cumulative effects of the closures over the past two years, lower current lease rates and the hard bargains tenants are driving on renewals. It takes a couple of years for the full effects of a downturn to be felt by owners.In addition to the sluggish economy making retailers cautious about expansion plans, most have cut inventories and staffs over the past two years. Gearing up will take some time. Many retailers have also changed their ideal store size – Staples, Walmart, Old Navy, Bed, Bath & Beyond among others have reduced their footprint. Existing deals are being cut with owners to reduce current spaces. Overall, this will create new vacancies, and in some cases, owners will get back odd-sized or difficult to lease space. New space requirements will be less.
Constrained capital markets make it harder for owners to fund new deals or the tenant improvements for downsizing tenants. Lack of capital also limits retailers’ ability to fund their expansions both in terms of real estate and inventory. As a result, owners with deep pockets and retailers with strong balance sheets will be in a favorable position.
Note: Heritage Park Mall has been closed as a retail mall and we do not anticipate it re-opening as retail. Consequently, we are taking the Mall out of our survey and re-classifying the still open Sears store as a freestanding building. Crossroads Mall, which is 75% vacant and for sale, remains in the survey for now.
This survey evaluates the occupancy of 230 retail centers (in excess of 25,000 s.f.) containing approximately 28.2 million square feet. In addition, we will be looking at the overall market, including freestanding properties that are not part of a shopping center. We have surveyed 235 freestanding buildings containing in excess of 12.3 million square feet; at mid-year, approximately 4% of this space was vacant. With these two types of properties combined, we have about 40.5 million square feet of space available for retail use (excluding strip centers with less than 25,000 s.f.).
Market vacancy equaled 14.0% at mid-year. For comparison purposes, adding back in the Heritage Park vacancy puts the market vacancy at 14.8%, the same as year-end. If you take both Heritage Park Mall and Crossroads Mall out of the survey, the market vacancy stands at 10.9 percent, unchanged from year-end.
Clearly there has been some activity in the market, but mostly tenants moving or upgrading locations. And, any space taken by new tenants to the market or expansions has been roughly equaled by closures or newly built space added to inventory. There continues to be a significant number of smaller strip centers in the market (under 25,000 s.f. in size). We would estimate there are easily 3 million square feet of these properties in the market. Many of these centers are struggling in the current recessionary market.
Twenty months into the worldwide financial crisis the impact is evident, though far from catastrophic, in the Oklahoma City multi-tenant industrial market. Present locally are increased vacancies, downward pressure on rents, and aggressive incentives by Landlords to capture tenants. Absent are the rampant vacancy and significant foreclosures seen in other markets. Overall, Oklahoma City is weathering the storm. In April 2010 Oklahoma City and Washington D.C. had the lowest unemployment rates for MSA’s over 1.0 million population, 6.1%. There is a general consensus of more leasing activity in the market, although the perceived recovery is proceeding very slowly and in no way resembles a “normal” market. A legacy of the financial crisis is the effect seemingly unrelated international financial events now project on local economies.
There were some significant leases in the last 12 months including a 300,000 square foot lease at the former AT&T facility. Many major warehousing users are taking advantage of high vacancy rates and slow market activity to demand short lease terms to help control operating costs. Overall multi-tenant market vacancy has increased from 12.9% in 2009 to 19.8% in 2010.
The Flex space market actually decreased in vacancy from 2009, 10.2% vs. 10.5%, fueled to a great extent by the Southeast submarket. In this area Flex is filling the gap created by a small office building base generally located away from new development in the area.
The bulk warehouse market has been especially hard hit by the trend of short term leases and by consolidations into regional distribution centers. Bulk warehouse vacancy increased from 17% in 2009 to 23.3%. This increase is due partly to vacated space and partly due to new space availability at the re-furbished Will Rogers Business Park, the former Dayton Tire plant. The prevalence of short term leases further complicates vacancy interpretation as relatively large spaces are vacated or absorbed on a short time frame.
Service Warehouse, traditionally the most volatile of the industrial product types, increased from 16.7% in 2009 to 21.5%. Rent sensitive tenants continue to drive this market sector, and the older warehouse properties have been impacted by the bargain rates available in more modern bulk warehouse facilities.
There were no sales of industrial multi-tenant properties tracked by s report in the last 12 months.
May Ten LLC paid $1.2 million to May Ten Trade Center LLC for a retail property at 2927 NW 10. Cordell Brown handled the transaction.
Falls Creek LLC paid $990,000 to Arapahoe Limited VII for an apartment property at 7032 NW 10. Phillip Mazaheri handled the transaction.
Fitness 19 leased 9,825 square feet of retail space in Casady Square Shopping Center, at Britton Road and N Pennsylvania Avenue, and 9,838 square feet at Edmond Plaza, 15th and Broadway in Edmond. Laci Jackson handled the transactions.
Flourish Pharmacy leased 985 square feet of industrial space at North Pointe Shoppes, 13925 N May Ave. Mazaheri handled the transaction.
Raster Masters LLC leased 9,375 square feet of office space at 7008 N Broadway Ave. Craig Tucker handled the transaction.
Ricky J. Lawson leased 450 square feet of office space in Quail Ridge Tower, 11212 N May Ave. Derek James handled the transaction.
James Wheeler leased 1,017 square feet of office space in Quail Ridge Tower. James handled the transaction.
Craig Elder Oil & Gas LLC leased 3,821 square feet of office space in the Caliber Center, 3817 Northwest Expressway. Tucker handled the transaction.
Dollar Jewelry and More leased 1,000 square feet of retail space in Walnut Square Shopping Center, Interstate 240 and S Pennsylvania Avenue. Everest Ernst handled the transaction.
Dr. Cody Greenhaw leased 1,482 square feet of retail space in Plaza Court, NW 10 and Walker Avenue. Ernst handled the transaction.
Braselton & Co. Inc. leased 5,700 square feet of industrial space at 3817 S Missouri Ave. Ross Hall handled the transaction.
Tax Internet Purchases – most states do not charge sales taxes on purchases made over the internet. A lot more are looking at it as a possible revenue source, particularly given the current economic downturn that has most states in a fiscal bind. It may not be the most popular position, but I believe that states should charge the same sales tax on internet purchases as they do on in-store purchases. This may be the only time you hear me advocate a new tax. And, I know that there are difficulties in tracking and enforcement, but they can be overcome. From a public policy perspective, I don’t think it makes sense to favor internet purchasing over bricks and mortar purchasing. Let’s level the playing field for all retailers.
Change Oklahoma Liquor Laws – I don’t know too much about liquor laws or liquor for that matter. But, I do know that Oklahoma’s liquor laws are antiquated and from strictly a retail perspective, hurt our ability to attract a number of retailers to the state including Costco and any number of grocers. We need these retailers to provide competition to Walmart and add quality to our retail mix which would benefit the Oklahoma Consumer. Even if you are not a drinker, the goods and services these additional retailers would bring to our market would broaden our shopping choices. Our current laws favor a handful of distributors at the expense of the broader retail market and consumers. I’ll leave it up to others to figure out what an equitable system would look like, but let’s start looking at it and move in that direction.
Sandridge Energy Building – Larry Nichols, Aubrey McClendon, Tom Ward, and their respective companies have played a major role in transforming this City in the last 10 to 15 years. Unlike some of their predecessors, their time and money have more often than not been spent here, making Oklahoma City a better place. Aubrey and Chesapeake have revitalized the area around 63rd and Western, creating a beautiful campus and re-making the entire area, including retail and housing components. The office tower that Devon is now constructing is unlike anything we’ve ever seen in terms of size and grandeur. The tax increment financing district related to the project is allowing us to redo virtually all the downtown streets and streetscapes, not to mention the Myriad Gardens. Let us not forget Sandridge, the quietest of the three, who bought and is remodeling the old Kerr McGee Tower at a time when many thought it would sit vacant for years. Sandridge now wants to spend upwards of $100 million revitalizing their block on which the tower sits. The opposition to their plan is well-documented and I have no doubt that opponents to the plan are sincere and well-intended. Nonetheless, Sandridge’s plan needs to be approved without further delay and there are persuasive reasons to do so: it’s private property and unless the City has some compelling interest otherwise, private property owners should be able to have wide latitude in what they do on their property. Their use is consistent with applicable zoning and Sandridge has followed the appropriate steps to get their plan approved. In this case, the buildings Sandridge will tear down are all obsolete and have no historical significance. As to the aesthetics of their plan, we can’t have the City become the taste police. The overall outdoor design, while clearly unique to Sandridge, is not that different from what Devon is doing around their building. We have always thrived as a business friendly city; it will do us no good to start antagonizing our leading corporate citizens. Let’s get their plan approved and give Tom Ward and Sandridge the thank you they deserve for taking a stagnant block and breathing life into it.