Oklahoma City Commercial Real Estate Market Trends
2016 Year-End Office Survey Summary
The Oklahoma City Office market was historically bad in 2016, experiencing negative absorption of nearly 521,000 square feet. Our firm has been tracking the market since 1986 and this is by far the worst absorption total during that time, and it’s not even close. The second worst year for absorption was 2002 when the market had negative absorption of 299,000 square feet. Overall, the vacancy rate increased from 12.3% to 15.5%. That number would have been even worse if not for the removal of the 243,000 SF Lincoln Plaza, which was sold to a local investor with adjoining properties. That investor has not yet fully determined the future of the building, but it will likely be mixed-use with some percentage of office, but for now it is not being marketed as office space and is therefore off the roll.
The biggest hits were felt in the Northwest submarket which has historically been the area of choice for energy companies. In the past twelve months this submarket alone contributed 57% of the overall negative absorption. The vacancy rate in the Northwest rose from 10% to 17.2% and the Class A vacancy rose dramatically from 7.5% to 25.7%. The good news for the Northwest submarket is that the worst seems behind it as consolidations, bankruptcies and relocations have subsided. This is still a very popular area of the city and we are seeing increased activity from several large users looking to secure large blocks of space in high quality buildings.
The Central Business District also suffered through 2016 with negative absorption of 122,000 square feet and increased vacancy from 10.8% to 13.8%. This submarket will be further challenged in the next twelve to eighteen months as Class A space currently under construction comes online. The additional cost of parking for downtown tenants adds to the task of getting this Class A space absorbed while the local economy begins to recover.
A bright spot for the local market in 2016 was the North submarket, which saw its vacancy rate fall from 13.2% to 8.8%. However, those results are tempered by the aforementioned removal of Lincoln Plaza. If that building were added back in the vacancy rate would actually be over 16%, which is worse than the year prior. However, it is good have that space off the market. The building had suffered through a catastrophic hail storm and resultant flooding causing it to sit mostly empty for several years before finally being sold at auction. Fortunately, it is now in the hands of Richard Tanenbaum, an experienced local developer who will quite possibly repurpose the building for other uses.
More space will hit the North market than perhaps any other due to Williams Companies recently announced closure of its offices at Central Park and the acquisition of Seventy Seven Energy by Houston-based Patterson UTI. It is not yet known what will become of Seventy Seven’s offices, but it is reasonable to assume that Patterson will not need all of the 70,000 square foot building. Williams currently leases app. 190,000 square feet at Central Park and that will now be available for sublease; a highly competitive option other landlords will have to deal with.
Going forward, we do not anticipate 2017 to be anywhere near as bad a year for the market, but there are still challenges ahead as we expect more space to hit the market from the prolonged energy industry shake-out. Several energy companies still occupy far more space than they really need. Most have held onto that space in anticipation of a rebound in the market, but so many have now right-sized their employee numbers and reduced costs through other operating efficiencies that we expect some of that excess space to eventually find its way to the market.