This report covers only multi-tenant, investment grade industrial buildings. We classify buildings according to design, intended use, and clear height into three categories:
• Flex Space is generally considered to be less than 18 feet, but also includes modern high clearance flex space developments
• Service Warehouse is from 18 to 23 feet
• Bulk Warehouse is 24 feet or greater.
Generally, the minimum size building tracked in any of the property types is 35,000 square feet.
The past twelve months have seen a rise in multi-tenant industrial vacancy from 17.63% in 2017 to 20.13% in 2018. Over 40% of the total vacant square footage is due to a single large vacancy of over 950,000 square feet in the southwest sub-market. The increase of vacant space in this particular location from 630,000 square feet in 2017 to the current level of accounts for the total increase in vacancy in the multi-tenant industrial market as a whole in 2018. Without that additional 320,000 square feet, the market-wide industrial multi-tenant vacancy for 2018 would be slightly less than in 2017. These adjusted figures reflect the relatively quiet market conditions seen in the past twelve months for multi-tenant space. This applies to previously existing space as well as much of the newly constructed bulk warehouse space completed in the last 12-24 months. Given the strength of the national economy and the resurgence in oil prices, this quiescence is difficult to explain. These market dynamics do not represent a stampede of tenants away from Oklahoma City metro, but more accurately represent a decrease in new-location move-ins of companies not previously in this market, and a lack of significant expansions of current tenants. We expect this low-level demand for space to be a temporary event, especially in context with other large single-tenant projects such as the recently announced Amazon Fulfillment Center. A yet-to-be quantified influence on the local market will be the amount of space absorbed by bulk warehouse users supporting the Amazon center.
The bulk warehouse market rose slightly from 12.16% vacant in 2017 to 12.76% in 2018. In a market of this size, this difference can be a function of one or two medium-sized vacancies. Flex space vacancy rose from 14.54% in 2017 to 15.63% currently.
Service Warehouse, always the most volatile of the product types, rose from 27.61% vacant in 2017 to 33.75% vacant in 2018. We define this sector as 18-24 feet in clear height including some shorter but functionally obsolete properties. This product type includes the large single vacancy previously discussed and indicates some significant positive absorption if the large vacancy was deleted.
Vacancy We do not expect substantial changes in the vacancy rate in either direction. New construction will likely be mostly pre-leased resulting in limited effects on occupancy rates.
Rental Rates Competition for tenants in certain product types such as Flex space will motivate owners to offer incentives, but rate decreases are not anticipated.
New Construction Overall, new construction is expected to remain at current levels focused primarily on oilfield service companies or owner-occupied space. The recently announced Amazon Fulfillment center may facilitate some new construction of bulk warehouse space for distribution firms supporting this location