OKC Office Vacancy

[Just the facts]

You hear this and then you hear people talking about why not to build another tower right now. I just don't ever get developers......

Would you classify OG&E's space as A or B? There isn't a lot of it so it's not going to saturate the market or anything. We got lucky as all hell when Devon's got swallowed up by Continental.

Technically it is neither since it is owner-occupied. The A to C classification is determined by the properties ability to generate market-rate rental income. However, when OG&E moves it is possible it will come on the market as C (which makes it a prime candidate for residential conversion).

[bombermwc]

C? I would have put it at least at B. The ability to get a particular rental rate depends on what the building has to offer. Anyone is going to gut the walls and rework the space, so the better question is what the infrastructure of the building has to offer. With renovations to restrooms/lobby/infra. the place could even hit A. I think that's a stretch, but do you really put it in the same spot as the FNC tower space???

[ShadowStrings]

Forgive my ignorance, but what are the criteria for the different classifications of office space? I've seen people refer to the different classes a number of times the last couple years I've been reading OKCTalk, but I guess I don't really know exactly what makes something class A, B, or C.

[hoya]

Forgive my ignorance, but what are the criteria for the different classifications of office space? I've seen people refer to the different classes a number of times the last couple years I've been reading OKCTalk, but I guess I don't really know exactly what makes something class A, B, or C.

There's no hard and fast definition. It's based upon what rental rates you can ask for.

Generally Class A has big big floor plates, lots of amenities. It's got all the modern stuff. The big companies lease Class A space.
Class B is somewhere in the middle.
Class C space is usually for smaller offices. A law firm with 9 or 10 employees will probably lease Class C space. First National tower is basically limited to Class C space, because the actual physical structure of the tower is seperated into a bunch of small offices.

[Just the facts]

The classification is also very location specific. A class A building in one city might not be a class A building in another city, or even in a different part of the same city. OKC for example has like 6 sub-markets. A converted warehouse in north OKC wouldn't come close to the same rental rate as a converted warehouse in Bricktown, so wouldn't be classified the same even if they were identical in every other way.

[NWOKCGuy]

That's true for every city. Location is part of the classification.

[ljbab728]

An update to this story by Richard Mize.

Numbers between the lines help tell Oklahoma City's oily office market story | News OK

Oil commanded the most attention in a story Thursday on the office market based on Price Edwards & Co.’s year-end summary, and some important numbers got washed out.
Class A vacancy fell from 9.3 percent at midyear to almost nothing, 0.7 percent, at year end, but overall vacancy barely budged, from 21.7 percent to 20.7 percent.

The important number, though, was 84.

“It should be noted that 84 percent of the vacant downtown space exists in buildings that were constructed in the 1920s and 1930s and nearly two-thirds of all the vacant space ... exists in one building — the First National Center,” Price Edwards reported. “That building’s dated systems and troubled ownership has virtually taken this building off the market for the past couple of years and any hope for new ownership and a revitalization of the project through a pending sale is now clouded by monetary claims from a partner in a previous ownership group. The point is, most of the available space downtown is vacant for a good reason and good space is nearly impossible to find (downtown).”

[bombermwc]

I'm not going to paste the link to the pay wall for the joklahoman article on this that came out today, but it's not hard to guess what it says. In a post covid world, office space vacancy is on the rise and isn't going to be anywhere even close to what it was pre-covid.

Drive around and you'll see lease signs on ever office building around. While some companies are pushing back to the office, it's not everyone. I would argue that it's not even the majority now. I've been in several markets around the country over the last year and i've witnessed the same thing. Millions of square feet of leased space just aging out on its lease, waiting to be cut off from the accounting sheets like a dying limb. Land lords are, understandably, not interested in re-negotiations because they know once the lease it up, they'll either be facing a massively reduced tenant base, or in some case, no tenants at all. The larger the floor plates available, the more difficult they are to fill with single tenants. So spaces are being broken up, repurposed (think converting to mixed use or even fully residential), or just flat closed.

So what does this mean here in OKC? Work from Home is here to stay. Once that pandoras box was opened in the 21st century, it wasn't going to get closed again. Employees got a taste of it and they're not interested in going back to the way it was. Hybrid maybe, but fully back...nope. There are some pretty old structures around town that have been the space for mid-size companies for decades. Those companies are just not there now. What i'm afraid of is that now that the demand has bottomed out and realistically will not be like it once was, do we see a rash of structures becoming dilapidated? Are we going to see a flurry of sales for a loss? It won't create demand, but it may lessen the financial burden on the landlord to keep things maintained.

Class A will continue to be class A. It will be nice and it will be maintained. But I have a worry that more Class B is going to slip to C and the C is going to fall off the wagon.

Thoughts?

[Pete]

^

The recent broker surveys:

Leadership Square: 32% vacant vs 23% at the end of 2020.
Oklahoma Tower: 22% vs. 9%
Landmark Towers: 41% vs.18%
Corporate Tower: 32% vs. 19%
Oil Center: 39% vs. 27%
Valiance Tower: 35% vs. 33%

They don't even mention BOK Park Plaza, which has to be well less than half full.

Pretty huge drops especially downtown when you consider First National Center was all office before and none now and Sandridge Tower is now fully occupied by the State. We've also had several buildings converted to residential and a couple more planned.

Probably a good thing BancFirst did their renovation when they did. I don't think we'll see office space of any significant size built downtown for quite a while.

[FighttheGoodFight]

Is there any mention if they have lowered prices of the rentals? Curious to see if they still expect 2019 rent when businesses can be more selective.

[Bits_Of_Real_Panther]

What us the % occupied at the Dowell building downtown?

[Just the facts]

Maybe this will prompt more conversions to residential.

[G.Walker]

To really put it in perspective, these are mostly Class B & C office spaces. Companies are now looking for high end amenities in Class A or Class AA spaces. I wonder how many of these vacancies are a result of companies moving to better spaces. If Oklahoma City want to recruit the best companies and talent, they need to build new Class A spaces.

[G.Walker]

But yet other cities are building office towers like it ain't nothing. So that COVID/work from home excuse needs to stop.

[Pete]

To really put it in perspective, these are mostly Class B & C office spaces. Companies are now looking for high end amenities in Class A or Class AA spaces. I wonder how many of these vacancies are a result of companies moving to better spaces. If Oklahoma City want to recruit the best companies and talent, they need to build new Class A spaces.

Of those listed, all are Class A except Landmark and the Oil Center.

[Pete]

What us the % occupied at the Dowell building downtown?

0%. It's been completely vacant for at least 10 years.

[chssooner]

But yet other cities are building office towers like it ain't nothing. So that COVID/work from home excuse needs to stop.

Building, but are they filling?

[G.Walker]

Most new Class A office buildings going up in other cities are tenant induced and not spec.

[G.Walker]

Of those listed, all are Class A except Landmark and the Oil Center.

Class A by what standards? I have a hard time believing Oklahoma Tower is a Class A office space comparable to BOK Park Plaza or Devon Tower.

[G.Walker]

The key to downtown high rise construction now is making it mixed-use. Most new high rises now are a mix of office, residential, and hotel. Oklahoma developers need to get of this old way of thinking building towers for just one use. Downtown OKC could definitely support a 30-35 story high rise mixed with office, residential, and hotel.

[Pete]

Class A by what standards? I have a hard time believing Oklahoma Tower is a Class A office space comparable to BOK Park Plaza or Devon Tower.

Class A based on brokers, the rent the building charges, and all the vacancy surveys.

Devon Tower is owner-occupied so it is not included in any of the surveys.

[Midtowner]

Should be interesting. I'd love to see some more affordable decent stuff come online.

[G.Walker]

New class A office spaces going up are being constructed to make the worker enjoy coming to work. So comfortable that it feels like you are at home. Most new Class A buildings have workout facilities, basketball gyms, eateries, lounge areas, green spaces, daycare centers, and top of the line technology.

[Just the facts]

I was in Tampa last week. They had at least 5 cranes going downtown.

[Pete]

^

OKC has several cranes in our downtown area and we are less than half the size of Tampa/St. Pete.