Newspaper article THE JOURNAL RECORD

Brokers: Oklahoma's Commercial Real Estate Industry to Weather Energy Storm in 2016

Newspaper article THE JOURNAL RECORD

Brokers: Oklahoma's Commercial Real Estate Industry to Weather Energy Storm in 2016

Article excerpt

Despite the challenges facing the Oklahoma commercial real estate market as a result of the steep decline in oil and gas prices, both Oklahoma City and Tulsa closed out yet another positive year in 2015. Most commercial property types reported low vacancy and strong rent rates. The strength in market fundamentals also proved instrumental in continuing the large wave of new commercial construction that is permeating throughout both markets.

As the local commercial real estate industry moves into 2016, the overall consensus among local experts is to expect more of the same in 2016. While the effects of the downturn in the energy sector should continue to loom over the state's economy, most experts believe the downturn would not completely stymie growth in Oklahoma City and Tulsa. The market will experience some noticeable effects, but experts contended Oklahoma is far from experiencing a second oil bust.

Industrial

Randy Lacey, vice president of CB Richard Ellis, said the state's industrial market is showing signs of stability moving into 2016. He expected vacancy to remain at fairly low levels, even though the downturn in the energy sector would likely cause a small increase in vacancy by year's end. Lease rates should also hold firm for local industrial properties; however, Lacey expected to see a small uptick in concessions that owners make to tenants.

"Vacancy is still fairly low and that should support the rates going forward for this year," said Lacey. "The pendulum may swing slightly but it will only be a small effect on rents and likely increase concessions."

With industrial vacancy low, it has resulted in an increase in new construction throughout the state. Lacey expected new construction to continue, but that almost all of it will be user- driven. Built-to-suit projects similar to the recent expansion of the Hobby Lobby headquarters in southwest Oklahoma City should drive most of the industrial construction activity in 2016. He added that developers would likely take a wait-and-see approach when it comes to speculative industrial construction.

"If there are users out there that need additional space, that will create some new build-to-suit construction activity," Lacey said.

The downturn in the energy industry might create some opportunities for investors and users toward the end of the year, Lacey said. With demand for Oklahoma industrial still strong, he said buyers may find some great opportunities in buildings vacated by oil and gas companies.

Multifamily

Both Oklahoma City's and Tulsa's apartment markets continued to be one of the strongest commercial real estate property types in 2015. Statistics showed rental rates continued to slowly escalate even though vacancy ticked up slightly due to the increase of new construction. Apartment sales also recorded another strong year, with several Class A properties having changed hands, such as The Shores of K-Rock, Avana 3131 and Avana on Second.

Tim McKay, senior managing director of ARA Newmark, said he was encouraged about the amount of transaction activity poised to take place in 2016, as interest in the Oklahoma City and Tulsa markets remains very high by large national multifamily investors.

"Oklahoma continues to see strong interest from some of the top 50 buyers in the nation," he said. "We have already seen some of these buyers enter the market over the last couple of years and expect more to do so this year."

While the struggles in the state's oil and gas markets are on the minds of many in the apartment market, McKay said the market is weathering the storm nicely, which is evidenced through such economic indicators as the continued low unemployment rate despite some energy-related layoffs. …

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