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.
Current multi-tenant industrial vacancy for the Oklahoma City metro area now stands at 16.96%, down from 20.31% in mid-year 2018. These swings seem to be the new normal – multi-year strong absorption and rent growth periods followed by multi-year double-digit vacancy and relative quiescence (a kinder term to use around your developer friends than “stagnation”), culminating in eight to ten-year cycles overall. The current cycle may be an under-built market leading into a slightly over-built market waiting for industrial real estate supply and demand to balance. Some hoped-for market events have not materialized such as a rush of suppliers into the market to support the Amazon fulfillment center. The influx of national distribution companies has slowed but not stopped, as has construction of new bulk warehouse facilities capable of multi-tenant configuration. It is usually difficult to correlate the local Oklahoma City market conditions with national industrial trends, but the number of recently constructed bulk warehouse projects points to a change in this market’s perception by nation and regional logistics companies.
The takeaway here is the fundamentals of this multi-tenant market that we have been repeating for decades: Oklahoma City is a long-term ownership market. There are not radical short-term swings in vacancy, the market is not going to crash, and the key to investing here is patience. These current vacancies will be temporary as long as the principles of development and ownership specific to this market are followed.
The bulk warehouse market vacancy declined slightly from 12.76% in 2018 to 11.92% in 2019. Gains in the North and Southeast submarkets were offset by a significant rise in vacancy in the Southwest, where total square footage equals the sum of the other submarkets.
Flex space vacancy declined from 15.63% in 2018 to 11.63% currently. Flex space is the smallest square footage of the three industrial property types tracked and generally consists of 3,000 to 10,000 square foot suites. This represents the largest single year decline in Flex vacancy since this report began in 1999. Flex space has long suffered from low and inconsistent demand. A major component of this absorption is the marijuana industry, including product production, processing, and sales, but also companies that supply and service the industry. While most owners (especially institutional owners) cannot, or will not, lease to cannabis product related uses, equipment and services suppliers present no obstacles.
Service Warehouse, always the most volatile of the product types, decreased from 33.75% vacant in 2018 to 27.07% vacant in 2019. We define this sector as 18-24 feet in clear height including some shorter but functionally obsolete properties. While attributable to both the marijuana industry and the generally low vacancies in the single-tenant industrial market, this kind of drama is “business as usual” for the Service Warehouse sector.