The first half of 2018 brought expected results for the Oklahoma City Central Business District with increased vacancy due to the addition of the BOK Park Plaza Building to available inventory and negative absorption of 84,000 square feet. However, there are continued signs of improvement in the suburbs as 157,000 square feet was absorbed in those submarkets. The net absorption for the entire market was a positive 73,000 square feet; the first positive absorption total in the past seven semi-annual reports.
So, is the bad news behind us? Certainly not - as additional buildings continue to come online and delay any significant improvement in the market as a whole. In the first half of the year an additional 820,000 square feet of new buildings were added to the market at BOK Park Plaza and Building 13 on the Chesapeake Energy campus. There has been quite a bit of speculation regarding Chesapeake’s excess space, so the addition of this building came as no surprise. It will bear watching to see if the energy company adds more space to the market over time if they can successfully backfill this first building.
The biggest improvement in the market occurred in the Northwest. Since the peak oil price in June 2014, this submarket had experienced negative absorption of 460,000 square feet and contributed 62% of the market’s overall negative absorption through the end of 2017. However, in the first half of 2018, this submarket showed improvement with 100,000 square feet of positive absorption and a reduction in the vacancy rate from 19.1% to 17.3%. The Class A sector of this market experienced a dramatic reduction in its vacancy rate; falling from 23.1% to 18.0%. This remains a very popular area of the city and leasing velocity is on the rise, so this submarket should bounce back to healthier occupancy levels in the next couple of years.
The Central Business District’s vacancy rate rose from 18.1% to 22.9% during the first half of 2018. There are lots of moving parts in the CBD these days with the announced relocation of Enable Midstream Partners from Leadership Square to over 150,000 square feet at BOK Park Plaza and the anticipated purchase of Cotter Tower by BancFirst. The 514,000 square foot tower is almost half empty and BancFirst plans significant improvements that will benefit existing and future tenants as well as provide a home for BancFirst’s own employees. This purchase does more than provide growth for BancFirst’s operations. It saves the building from its economic malaise brought about by deferred maintenance and inattention to the needs of its existing tenants by previous ownership.
Looking ahead to the second half of 2018, we anticipate minor improvement in the vacancy rate, but success will be very fractured depending on location. In general, we see the suburban market continuing a trend of modest improvement. Every time this market has a bit of good news, it seems to be offset by the addition of excess space by a large energy company. We knew the CBD would have a tough time in 2018 and we don’t anticipate that to change in the second half of the year. There are lots of large deals that will impact downtown and the suburban markets in the next 6-12 months, but for the most part they are lateral moves within those specific submarkets. However, most should have a net positive effect as they will provide expansion space for those users.