OKC Office Vacancy

[soonerguru]

It's very troubling that the newer, bigger buildings downtown all have significant vacancy.

BOK Park Plaza is 58% and I don't think that counts some empty space that is being offered for sublease.
Leadership Square is 38%.
Oklahoma Tower is 21%.
Corporate Tower is 19% but that number will shoot way up when Philips Murrah relocates later this year.
City Place is 29%.
55 N Robinson (the IRS Building) is 55%.

I think what we'll see is that these Class A buildings start to offer deals for tenants to relocate from older buildings because their rent rolls are going to continue to head downward as leases expire and companies contract.

when I worked for a startup a year or so ago we were looking at office space. Despite all of this vacancy, try looking for something workable on Loopnet. Yes, there are things for lease, but everything is still fairly pricey and / or less than ideal. A lot of corporate property owners are still holding out for golden rents.

[G.Walker]

And yet we still see office projects being developed. The Citizen, Phillips Murrah, Convergence just to name a few. Also don't forget Citizen Potawatomi Nation recently purchased 18-story Union Plaza, with plans for expansion down the street with another 60,000 sqft building. Seems like the trend that banks will always fill office space.

With the evolution of AI starting to do some daily work, which will also reduce manpower, the days of building 40 story office towers might be over, but I think we will see smaller 15-20 story office towers being developed.

[Pete]

^

All those new office developments involve moving existing tenants from other buildings.

Also, I don't believe all the Chesapeake space is counted in the numbers as of yet, but it is going to hit the market and have an impact.

All of this means our office vacancy is going to continue to go up.

[stlokc]

Such a good point, Pete. I always look at these new developments like Citizen and Phillips Murrah with a bit of a "glass half empty/glass half full" reaction.

It is certainly nice to see, visually, new construction rising in the core. Fills in dead spaces, brings street life, brings an appearance of growth and vitality. All great things. But then in the back of my mind, I think, if these companies are leaving other office space in the core then at the end of the day it's really kind of musical chairs. Now, if the companies are relocating from NW Highway or I-40 or, even better, out of state, than that's a win.

On balance I would rather have this new construction than not, but it's not always a 100% good if it leaves hard-to-fill space behind.

[CaptDave]

It's unfortunate we have a few large companies that chose to build their facilities outside downtown. For example, had PayCom located in the urban core I can only imagine the impact they could have had. That ship has likely sailed but it is something I think about.

But on the positive, Heartland's building on Broadway definitely helped fill a large gap.

[The]

It would be nice to see less of the soulless **** on NW Expressway and Memorial and more job concentration inside the Grand loop via better land use. Like that new Chickasaw bank building would’ve looked great downtown or as said above, Paycom.

[PhiAlpha]

It's unfortunate we have a few large companies that chose to build their facilities outside downtown. For example, had PayCom located in the urban core I can only imagine the impact they could have had. That ship has likely sailed but it is something I think about.

But on the positive, Heartland's building on Broadway definitely helped fill a large gap.

yeah I think that was a stupid decision but if Paycom wants to be out in the middle of nowhere and likes it, power to them.

[stlokc]

I've written this before, but OKC is actually in a pretty fortunate position, in that growth is spread in multiple directions from downtown. It's probably a bit lopsided to the north and northwest, but there is a lot of growth in Yukon/Mustang, Moore/Norman etc. That keeps downtown more or less in the center of the urbanized area. I don't think it's well-appreciated how much that has the power to help the core.

In St. Louis, easily 90% of the growth is due west. On the Dallas side of DFW for example it's overwhelmingly north. In Tulsa it's overwhelmingly south. In coastal cities it's obviously all in an inland direction. Over time that mismatches the center of your population with your core.

In OKC for example, if I wanted to build a large business and be sure I could take advantage of all the population centers it makes sense to be more in the center of the city. I'm not knocking Paycom, I assume they are smart and doing something right, but I bet their employee base is skewed northwest. Would you drive all the way there every day if you lived in Midwest City or Moore? The pay would have to be worth it. (Of course remote work plays a part in this discussion now, but I still think my general point stands)

As traffic gets worse and prices go up, it makes even more sense in OKC to be towards the center. Whether people are thinking this way or not is another story.

[PoliSciGuy]

Agreed with all of the above, and also OKC is fortunate that converting these office spaces to residential is a viable option. That might also spur a bit of a virtuous cycle, where more population downtown makes downtown office space more desirable, which may bring in more workers. which puts upward pressure on office space rents, etc.

There is clearly a nationwide, post-pandemic shift in what role offices serve, what workers expect from them, and how much space we really need. Thankfully, OKC is in a good place to ride out this transition and capitalize on what the "new normal" is. Can't imagine what this would look like if residential demand wasn't there...probably a lot like what our older posters experienced in the 1980s here.

[stlokc]

I would say one more thing. We all cringe and cry when we see old pictures of the buildings that were destroyed downtown during the Pei Plan, and generally we're right to be upset. OKC lost landmarks, character and density. BUT in a way that does help us a bit today, we just have a lot less space available downtown than most cities our size. And what is available, as PoliSciGuy writes, is sometimes available for conversion. It's almost like we "rightsized" our core a generation in advance. To go back to St. Louis, they never did that. There are blocks and blocks and blocks of old structures that they can't fill. Some of them have become trendy lofts but the floor plates for some of the buildings are so large that that's not always practical from a cost standpoint.

[Urbanized]

^^^^^^^^
The buildings that are most resistant to residential conversion are modern ones, though. MUCH larger floorplates in general, and tons of space away from windows. Some conversions of more modern (70s and later) structures are literally having to scoop out the center of the structures to create light wells. It’s a very expensive proposition.

[PhiAlpha]

I was really comparing CBDs since that's what I was primarily thinking of in regard to vacant office space. I think if you spread it to the entire urban core, OKC and Tulsa are pretty even on conversions with OKC having the edge (by a decent margin) in new residential construction.

This is what I could think of off the top of my head for the Tulsa CBD:

Residential Conversions:

• YMCA Lofts
• Philtower (top half)
• Mayo 420 Building Apts
• 111 Lofts
• Vandever Lofts (Rose Rock)
• Reunion Apts (Rose Rock)
• Palace Apts (Rose Rock)
• Adams Apts (Rose Rock)
• The Meridia
• Art Deco Lofts
• Oil Capital Building
• Harrington Lofts
• Sinclair Building (Under Construction)
• ARCO Building (Under Construction)
• Amoco Building (Starting this spring)
• Philcade (Starting this spring)
• Beacon (Starting this spring)

Hotel Conversions:

• Tulsa Club
• Hyatt Place
• Atlas Life (Courtyard Marriott)
• Aloft Tulsa

Add one to the Apt list, the downtown Tulsa holiday inn just closed and is being converted to apartments: https://tulsaworld.com/news/local/ap...JTZ8gL5tLTCG8s

[Swake]

Add one to the Apt list, the downtown Tulsa holiday inn just closed and is being converted to apartments: https://tulsaworld.com/news/local/ap...JTZ8gL5tLTCG8s

Also the Tribune Lofts, Transok building, Mayo Hotel Lofts, Bedcheck Building and Bill White Chevy as apartments. And The Brut hotel.

[PhiAlpha]

Also the Tribune Lofts, Transok building, Mayo Hotel Lofts, Bedcheck Building and Bill White Chevy as apartments. And The Brut hotel.

Yeah I left most of those off because they aren't in the CBD though I didn't realize the Mayo Hotel itself had residences in it.

[UrbanistPoke]

Yeah I left most of those off because they aren't in the CBD though I didn't realize the Mayo Hotel itself had residences in it.

About half the building is residential - has 74 units with some of the larger units renting closer toward $5,000+/month. It's very popular with wealthy divorced individuals lol. I personally know 5 different doctors who moved there during getting divorced before buying another house lol. I think the Synders who did the rehab still live here too.

The Transok is in the CBD and East End Village/(Bill White Chevy) is on the border.

[PhiAlpha]

About half the building is residential - has 74 units with some of the larger units renting closer toward $5,000+/month. It's very popular with wealthy divorced individuals lol. I personally know 5 different doctors who moved there during getting divorced before buying another house lol. I think the Synders who did the rehab still live here too.

The Transok is in the CBD and East End Village/(Bill White Chevy) is on the border.

I’ve been going to the Mayo for 12 years and had no idea lol.

The Transok building it’s now the Art deco Lofts, which I included. Just didn’t know the original name of the building.

[bombermwc]

Something to watch for the real estate market, will be at the 5 and 10 year marks post COVID. So I'm thinking next year and then from that point forward to the 10 year mark. That's when we are going to see the leases coming up. For now, tenants can sublease if they can find another tenant to take it on. But as the 5 year leases that were signed just before COVID come up, do companies exit them? Then in the next 5 year chunk, what about the early-out clauses?

Companies get some tax/accounting benefits by "shuddering" operations on leases. But you have to do that for all footage on the lease. So if your lease is per floor, the you can be granular. But if it's not, well then you can't just carve out a space to use and put the rest below the line....it doesn't work that way. But companies are seeing some savings if they can do this, without just paying fully for empty offices. The reason this is all important, is because you are seeing spaces leased out, but aren't really being used. And that means when those leases come up for renewal, well they won't be renewed. And if there's a financial benefit to doing an early-out, then they'll do it. And when that time line comes up, personally i think our vacancy numbers (along with the rest of the country) are going to start looking even worse.

Even before COVID, we couldn't lease out some of the newest space in OKC in the BOK Tower. What we saw instead, is what we continue to see. Smaller low rises where the company can own the entire structure instead of leasing it out. It's not a sound investment in my view because now in today's market, if you need to leave that building, well good luck finding a buyer.

I still haven't figured out Union Plaza either. The tribe buying it doesn't make much sense. It's pretty empty like I described above with maybe a couple hundred people there in any given day. And the new ownership is even less responsive than the old ownership, which is saying something....something bad. Poor management of a building like that, drives what few tenants you have left, away. And honestly, there's nothing special about that building compared to the next one. The maintenance staff is the same, and they are still good. That does go a long way to keeping tenants happy. But if you can't get a reply from your landlord for several days, that's a problem. But that's a different tangent.

I'm saying that we're not done looking at the bad real estate market yet. The drama is just really beginning now. The lease termination fest is just starting folks, and it's going to get ugly.....VERY ugly, before it gets better. Get ready for a massive office space bubble to pop across the country. And toss all those hopes in a market like ours, for something to get built in the next 20 years. Skyscrapers are going to be frozen for a while outside of crammed metros like Chicago/NYC.

[HOT ROD]

I agree it is rather intersting that smaller companies wanting to be downtown are building mid-rise office towers in Midtown/AAlley rather than just renting space in one of the skyscrapers. I appreciate the in-fill but as you mention, it does tie your hands in a way whereas OKC has plenty of office space available in the skyscrapers.

Speaking of that, BancFirst seems to be quite successful. I know BancFirst took 14 floors off the market, but the rest of the tower is pretty full - even a company took the 33rd floor recently am-I-right? I don't recall hearing any renovations of the tower other than the exterior and elevators; what's making BancFirst tower successful? Could that be transferable to BOKPP, Oklahoma Tower, and Leadership Square?

I assume Park Place is successful do to it being B class space, smaller outfits can afford it there. But what about Arvest? They're business condos - is that the way to go for smaller footprint towers throughout the metro?

Interesting to get your thoughts as it appears you have a lot of knowledge in office real estate.

[CitySooner]

I agree it is rather intersting that smaller companies wanting to be downtown are building mid-rise office towers in Midtown/AAlley rather than just renting space in one of the skyscrapers. I appreciate the in-fill but as you mention, it does tie your hands in a way whereas OKC has plenty of office space available in the skyscrapers.

Speaking of that, BancFirst seems to be quite successful. I know BancFirst took 14 floors off the market, but the rest of the tower is pretty full - even a company took the 33rd floor recently am-I-right? I don't recall hearing any renovations of the tower other than the exterior and elevators; what's making BancFirst tower successful? Could that be transferable to BOKPP, Oklahoma Tower, and Leadership Square?

I assume Park Place is successful do to it being B class space, smaller outfits can afford it there. But what about Arvest? They're business condos - is that the way to go for smaller footprint towers throughout the metro?

Interesting to get your thoughts as it appears you have a lot of knowledge in office real estate.

A few things - you're talking about Arvest being "business condos", do you mean City Place or the old Sandridge buidling? Those are both technically condos, but Arvest is a normal multi-tenant tower.

On BancFirst, you're correct in it having been filled up pretty good recently. On top of the improvements you mentioned, they really knocked it out of the park with the lobby/concourse areas.

[Pete]

It seems all the new office, construction is merely moving tenants from other buildings:

Convergence: Wheeler Bio from Parkside
Alley North: Guernsey from 5555 Grand
Citizen: 6-7 tenants from various spots + 2 floors for a new club
11th & Hudson: Resolution Legal Group from building just north
Phillips Murrah: Relocating from Corporate Tower

[Pete]

It seems all the new office construction is merely moving tenants from other buildings:

Monarch: Ackerman McQueen from Valiance; Lingo from smaller building
Dolese: moves from Auto Alley to the Half
Dolese/Alley North: Guernsey from 5555 Grand
Convergence: Wheeler Bio from Parkside
Citizen: 6-7 tenants from various spots + 2 floors for a new club
11th & Hudson: Resolution Legal Group from building just north
Phillips Murrah: Relocating from Corporate Tower

[retrospective]

I believe BancFirst tower is effectively full at this point, there's still 50K sq ft showing available with Price Edwards, but i am told BancFirst's growth is expected to continue filling what empty spots do remain. When I looked it seemed like only the odd spot or two are available, i don't believe there is an entire empty floor available for lease at this time BancFirst has expanded up to floor 17(?) now, filling at least 2 or 3 floors following the consolidation of their workers. I'd be interested in the actual employee count increase, and whether there is a chance for BF to fully occupy this building in the coming years. If rapid enough the displacement of other tenants could be a big help in filling places like BOK or Leadership