Thanks to the nation’s lowest jobless rate among large cities, Oklahoma City’s office market has not headed down the all-too-familiar slippery slope of rising vacancies and lower rents that many other metro areas have experienced over the past year.
Not yet, anyway. Vacancy in downtown Oklahoma City’s Class-A office submarket, the city’s largest, registered 9.6% at year-end 2008, down from 12.2% a year earlier, according to Price Edwards & Co., a local full-service real estate firm. Rental rates moved up from $17.08 to $17.34 per sq. ft. during the same period.
At a recent 2009 forecast conference sponsored by the local Commercial Real Estate Council, about 300 attendees were quietly reveling in their fortunate circumstance. Conference keynoter James F. Smith, chief economist with Parsec Financial Management and a professor at Western Carolina University, noted that Oklahoma City has remained insulated from much of the broader economy’s travails thanks to a more diversified industry base.
While the national unemployment rate soared from 4.8% in December 2007 to 7.1% in December 2008, Oklahoma City saw a slight increase from 4.2% to 4.6% during the same period.
Only seven MSAs in the country saw more net job creation than Oklahoma City in 2008, while the U.S. lost nearly 2.6 million jobs in 2008. “Most other parts of the country would love to have an unemployment rate that low these days,” said Smith.
Real estate professionals also note that the local economy is less dependent on the oil and gas industry than at any time in recent memory, but they admit that run-ups in energy prices in 2008 helped propel the local economy higher. “Oklahoma City is so well-positioned now, but the price of oil still has a profound impact on the psychology of this city,” says Ford Price, managing partner in the Price Edwards firm.
During the most recent economic boom, civic leaders bolstered the city’s stature by luring the National Basketball Association’s former Seattle SuperSonics franchise, now known as the Thunder, to town in July 2008. Franchise owner Clay Bennett is chairman of locally based Dorchester Capital Corp.
The city also is breaking new ground when it comes to its skyline. Devon Energy Corp., the largest independent oil and gas producer in America and Oklahoma City’s largest corporate citizen with 1,500 employees, is breaking ground in July on a new $750 million, 54-story skyscraper. The tower, which will be fully occupied by Devon, is being developed by Hines and designed by Pickard Chilton Architects.
“Oklahoma City will finally have an iconic tower that will clearly define our skyline,” notes Klay Kimker, president of Devon Realty Advisors. Kimker says he expects the redevelopment of an existing parking garage to begin in July, with site work on the new building slated to start in November 2008. Thanks to a new tax increment finance district approved by the city council, the tower’s development will spawn an estimated $175 million in new taxes to be used to redevelop downtown streetscapes.
Unfortunately, Devon’s plans also will create a gaping hole in several downtown buildings. Once its new headquarters is complete in 2012, Devon will consolidate nearly 1 million sq. ft. of office space it currently occupies in five downtown buildings. That equals nearly 20% of the total CBD office market.
Devon chairman and CEO Larry Nichols has been a long-time downtown booster, and Kimker says the company began talking with the affected landlords more than a year ago to give them as much lead time as possible to plan for the departure.
“I can’t worry about what’s going to happen three and a half years from now because I can’t prelease space that far in advance,” says Mark Beffort, a principal with Harrison Levy at Grubb & Ellis/Levy Beffort, which leases and manages four of the five downtown buildings that Devon occupies.
The flip side of empty space is the possibility of attracting a new national corporate tenant to town. “As a city, we are very progressive about how we approach attracting corporations. I believe that given the commitment we’ve made, we’re really poised over the next five to 10 years to attract a headquarters as opposed to a regional office,” says Beffort.
Price of brokerage Price Edwards agrees. “It speaks well in this day and age that we have a great corporate citizen that invests in downtown. Is it going to have a negative effect short term? Sure. We’re not a big primary market, so it doesn’t take much to tip the scales here, but Oklahoma City has been a good steward of the improved economy.”
Of course with energy prices off dramatically from their mid-2008 peaks, the major question on every local broker’s minds is just how long the good times will last. “This downturn doesn’t feel quite as bad as a few I’ve seen, but I do think investors are going to have a hard time pulling the trigger this year,” says Tim Strange, who opened the Oklahoma City office of real estate firm Sperry Van Ness five years ago.
Uncharacteristic for many real estate brokers, local experts are speaking in measured, realistic tones about near-term future prospects, thanks to hard lessons learned in the last boom and bust cycle of the 1980s. “Historically we’re six months behind in our downturn, but our uptick has been right along with the major markets,” says Levy, whose family has been involved in the local commercial real estate market since 1905. “If the stimulus package takes hold, and toward the end of the year employment starts rising, then Oklahoma City should be OK.”
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