Demand for leased space is hot in OKC area
Warehouses are smoking. Industrial property is still as hot as fever compared with other real estate sectors, thanks, still, to medical marijuana companies' continued demand for growing space and storage space.
Then there's the Amaphenom-ezon of last-mile and other e-commerce distribution demands, based on the shop-from-home phenomenon. Demand for space by socalled “pandemic-proof” users surely will abate as the coronavirus is subdued and more people are willing to go back into stores. But I'll bet it doesn't reverse — just see slower growth.
Demand is strong for logistics-warehouse distribution space in general, as well as for general equipment storage, said Zac McQueen, industrial property specialist with NAI Sullivan Group. I thought idled oil-and-gas equipment might be sitting everywhere, but McQueen said improvement in the sector has kept it from filling up the yards. It's demand in general, he said.
Oklahoma City's industrial property market has been “a very resilient asset class through the uncertain
times of 2020,” McQueen wrote in NAI Sullivan Group's industrial report for the fourth quarter.
Just more than 330,000 square feet of net space went back into use, he reported, up slightly from the third quarter. Class C buildings had their best quarter of the year with net absorption of 145,340 square feet.
The overall vacancy rate continues to decrease from a high of 5.4% at midyear to 4.2% at year's end.
“This is an excellent signal of the strength of the Oklahoma City industrial market,” McQueen wrote. “That it is not just recovering from the COVID-19 economic shock but is in fact surpassing pre-COVID-19 figures.”
The average industrial lease rate for the fourth quarter was $6.55 per square foot per year on a triplenet basis, meaning the tenant pays for building insurance, property taxes, maintenance and utilities. It's crept up throughout 2020 from $6.24 in the first quarter. Class B industrial space saw the highest rent at $7.03.
(Fun fact from the past: The average industrial lease rate 20 years ago when I started following the market was something like $3.85-$4.10 per square foot per year, triple net.)
“With increasing rents, low vacancy, and a strong outlook, construction has begun to react,” McQueen wrote, hitting its high for 2020 in the fourth quarter, at 595,575 square feet.
(Another blast from the past: The first reporting I did on this market was in 2000, when 200,000-plus-square-foot Airport Distribution Center went up at 5200 SW 36. It was mega business news because the mega warehouse was the first speculative industrial development here in 15 years, since the 1980s oil bust.)
McQueen reported investor demand continued strong, as well, because of strong returns.
“The average capitalization rate for Q4 2020 was 8.2%, an incredibly competitive return compared to competing markets,”
McQueen reported. “This has continued to bring out-of-state investors into the Oklahoma City market.
“Throughout 2020, we have seen our economy face unprecedented stressors, and still industrial real estate has continued to prove its resiliency. We hope and expect these positive trends to continue into 2021 as vaccinations for COVID-19 are rolled out giving the economy and the country a light at the end of the tunnel.”
And the developers, building owners, property managers, leasing agents, tenants and everyone else said: “Amen.”