The Oklahoma City office market is performing very well given the sluggish national economy. The market absorbed another 85,000 square feet during the first six months of the year and appears poised to have a strong second half as well. Of course, it will need to as it faces the staggered relocation of Devon’s offices into its new 50-story tower during 2012.
The overall market vacancy fell from 17% to 16.4%, with all of that gain coming in the suburbs. The Central Business District’s vacancy rate actually increased from 24.9% to 25.3% while the suburban submarkets saw improvement from 12.8% down to 11.7%. As in our last few reports, the majority of the suburban gains were seen in the Northwest submarket where 58,000 square feet was absorbed and the vacancy fell from 11.6% to 10.6%. The Midtown area also saw significant improvement, absorbing 46,000 square feet and reducing its vacancy rate from 13.2% to 9.5%, solely on the strength of one 50,000 square foot lease with MidFirst at Shepherd Mall Office Complex.
The suburban Class A buildings, which are typically a market indicator of what’s to come, also showed significant gains. Class A suburban vacancy fell from 12.7% to 11.2% during the first half of the year and rental rates increased from $20.77 to $21.05. We expect rents to continue to rise in this sector for quite some time as the market gathers strength and no new speculative construction has been announced which would add to the supply.
The large MidFirst deal is just a small indication of just how dynamic the market is today as several relocations should result in large swings in the market and from one submarket to another. Obviously, the largest of these is Devon Energy which will eventually vacate a little over 800,000 square feet in downtown buildings over the next year to 18 months. However, two recent announcements help temper that loss as Continental Resources has purchased Devon’s existing headquarters building and will eventually backfill approximately 230,000 square feet at that location as it relocates employees from its current headquarters location in Enid, Oklahoma. Enogex also recently announced that it will relocate to the CBD, moving from approximately 116,000 square feet at Central Park in the North submarket to a like amount of space in the north tower of Leadership Square in the first quarter of 2012. Given the quality of the Central Park property and the dearth of large contiguous blocks of space in the suburbs, we do not expect it to take long to fill the void left by Enogex. Another significant transaction to occur in the first half of the year was Chesapeake Energy’s purchase of the 156,000 square feet Atrium Towers project. The tenants in the twin 6-story towers will eventually relocate to other properties as Chesapeake plans to use the buildings for its own employees. Given the buildings’ current occupancy, approximately 140,000 square feet of positive absorption should occur as those existing tenants find new locations. One move that will negatively impact the suburban markets in the second half of the year will be Paycom’s relocation from its current location in Lakepointe Towers where it occupies approximately 40,000 square feet to its new 90,000 square foot building on the Kilpatrick Turnpike.
It’s important to note that while the local office market has hovered near 15 million square feet for the past ten years, the city has actually seen significant growth in office space as many multi-tenant buildings have been purchased by owner occupants and removed from our report which tracks only “leased” buildings. Also, many users such as the aforementioned Paycom have built their own buildings and left available inventory behind.
The Price Edwards & Company 2011 Mid-Year Oklahoma City Office Market Summary can be downloaded here: PDF