Downtown office market expanding while in flux
On Sunday, a story was broken in The Oklahoman about a new office building to be constructed downtown. Just a couple of days earlier, a reader asked during the weekly OKC Central Live Chat whether the office market was healthy enough to support new development.
It’s a good question. And the answer is neither yes or no, but rather, it’s complicated.
First, consider the space surveyed year after year for occupancy reports has been dramatically altered in recent years with the removal of First National Center, 120 N Robinson Ave., and the consolidation of Devon Energy’s offices spread out among several buildings into its 50-story headquarters at 333 W Sheridan Ave.
The relocation of Continental Resources to the old Devon building, 20 N Broadway, and the move of SandRidge Energy into the old Kerr-McGee headquarters at 123 Robert S. Kerr Ave. back during the good old days of the oil and gas boom (yes, that’s what we had a few years ago) spurred planning for five new towers and a garage construction spree.
Looking back, downtown Oklahoma City dodged a bullet when the folks at City Hall stood up against a request by Chicago-based Clayco for a record high amount of tax increment financing (more than $100 million) to build two office towers and two apartment towers just west of Myriad Gardens. Clayco only had OGE Energy Corp. signed up to occupy just part of one of the two 26-story office towers with the remaining space to be leased as speculative space.
Across the street, Texas-based Hines, in coordination with Devon, built a 27-story tower in which the energy company committed to leasing 250,000 square feet but with the anchor tenant, Bank of Oklahoma, leasing six of the floors.
Devon has gone through a series of layoffs, and even with recovering oil prices, announced the layoffs of another 300 employees last week. The company has not occupied the space leased in BOK Park Plaza and such a move isn’t seen as being likely in the foreseeable future.
SandRidge Energy, meanwhile, converted a planned amenities building at 120 Robert S. Kerr, already under construction when oil prices crashed, into a 10-story office building. It remains empty, and the company occupies only about half of its main 30-story tower at 123 Robert S. Kerr.
The infamous corporate raider Carl Icahn is in attack mode with the company being eyed by some for sale and possible dismantling. If the company stays and survives, observers say half of the tower likely will be marketed for leasing to the market.
Finally, the 36-story Cotter Ranch Tower, long known as the home of Liberty Bank, is in bankruptcy at 53 percent occupancy and also up for sale.
At first glance, this would indicate the downtown office market is not good. The nature of the energy industry has changed over the past few years and it’s clear energy companies are not going to fill this empty space anytime soon.
But the picture isn’t quite so simple. In talking to various brokers and property owners downtown, the consensus is that rent rates are going up and occupancy in other properties is pretty healthy, especially in the more attractive Class A properties.
And behind the scenes, deals are in play that — if realized — could provide a very different outlook. Developer Andy Burnett is in talks with a company that would occupy a seven-story building proposed for NW 6 and Broadway.
Midtown Renaissance Group, meanwhile, has a tenant lined up to occupy one of the four floors of a 54,000-square-foot office building they are set to build later this year. The developers — Bob Howard, Mickey Clagg and Chris Fleming — all appear confident they can lease the remaining space.
Mark Beffort and Burnett, meanwhile, are in the midst of redeveloping the 110-year-old Pioneer building into offices. In the grand scheme, the property is a smaller space even though it enjoys a prominent and visible location.
Several sources have informed me an owneroccupant deal is in the works for the SandRidge Parkside Building. And if SandRidge does go away, could the old Kerr-McGee building become the ultimate home to OGE Energy? Such a deal would not hurt the office market too much because OGE’s current, historic home is seen by many as an attractive candidate for conversion into housing.
Prospects for filling the empty space at BOK Park Plaza may not look so bad in light of comments shared by Roy Williams, president of the Greater Oklahoma City Chamber, during a live chat on NewsOK.com two weeks ago. He revealed the chamber is working on 64 economic development projects, six of them involving new office prospects.
The cup is not empty. But it’s absolutely not full. A report earlier this year by Price Edwards suggested vacancy at the end of 2018 could hit 23 percent. Some of the observers I’ve spoken to are alarmed and see the potential for office vacancy hitting or exceeding the dreadful 28 percent recorded during the early 1990s.
Others note prospects are good for leasing a large amount of the vacant space. Rents are stable, in some cases still rising. The SandRidge tower has undergone an extensive renovation, the Parkside and BOK Park Plaza buildings are brand new.
I remember walking the Central Business District in 1990 when I was first hired by The Oklahoman. Leadership Square was an empty shell. The office market was in a steep decline that was apparent to all involved.
But downtown is not what it was in the early 1990s, and others see suburban and out-of-state companies taking a serious look at moving to the urban core.
With energy only accounting for 3 percent of the Oklahoma City economy, the days of drastic ups and downs, locally, are fading. Into what remains the big question ahead.