Coronavirus, energy pains hit most property markets hard in OKC area
Here are highlights from Oklahoma City’s NAI Sullivan Group’s midyear market reports, available in full online.
In retail property, 165,280 square feet of net space was vacated, with negative absorption of 3,989 square feet in Class A, 24,177 square feet in Class B, and 144,445 square feet in Class C, according to David Hartnack, NAI Sullivan vice president of retail.
Overall vacancy was 6.3%, up from 6% in the first quarter. Average rent rate was $14.17 per square foot per year, up from $13.85 on several high-rate leases of relatively small spaces: McAlister’s Deli, for example, signed a lease for a 3,900-square-foot space at 6224 SW 3 for $39.74 per square foot per year, Hartnack reported.
“COVID-19 continues to wreak havoc in the retail market sector,” he wrote. “Forced closures and restricted openings have severely hurt retail sales projections. The $2.2 trillion economic stimulus package passed at the end of March allowed many tenants to avoid having to ask for rent abatements during the lockdown, but as the pandemic continues to restrict economic activity, we are expecting more requests for assistance in the forms of rent abatements or reductions.
“The pandemic’s effect on retailers has varied greatly depending on the specific industry type. While restaurants and fitness facilities were forced to shut their doors in April and May, many grocers and hardware stores were reporting record sales. This quarter was also marked by multiple announcements of store closing,
as retailers like GNC, Nordstrom’s, Neiman Marcus, J.C. Penney, and Gold’s Gym cut their underperforming units.
“At the beginning of the third quarter we have seen substantial recovery, but new COVID-19 cases continue to increase in Oklahoma.
“We are left hoping that we aren’t in for another round of shutdowns that could further impact retail sales.”
Negative net absorption of industrial space in the second quarter was minus 749,906 square feet, meaning that much net space was vacated.
That “surpassed the lowest point that was seen during the Great Recession,” minus 702,891 square feet in the first quarter of 2008, reported Zac McQueen, broker and industrial specialist.
He said Class A buildings were hit hardest, accounting for nearly 92% of the darkened space. Class C warehouses performed best with a positive net absorption of 52,125 square feet.
Overall vacancy rose again, to 5.4% from 4.8% in the first quarter. By location, the west/central submarkets — heavy on oil and gas — have been hit hardest, with a vacancy of 7.8%.
“As the data trickles in from the economic fallout of COVID-19, these vacancy rates may continue to increase, creating a future tenant-friendly market as landlords become increasingly desperate to fill their vacant spaces,” McQueen said.
The average lease rate was $6.29 per square foot per year, triple net — tenant pays for property insurance, property taxes, maintenance and utilities — a slight increase from the last quarter.
Substantial leases included two for more than 100,000 square feet each, one to Amazon and one to Encore Fulfillment LLC. E-commerce is not weathering the coronavirus storm; it’s playing in it.
Negative net absorption of office space in the second quarter occurred in all classes of buildings, with 209,407 square feet of net space vacated.
That was down from the first quarter, which saw 408,714 square feet of negative absorption, but more vacant space is coming onto the market, reported Amanda Sullivan, office specialist.
The average rental rate was $18.46 per square foot per year, an increase from $17.94 in the first quarter, perhaps, she wrote, from new Class A office space that was preleased and hit the market. Overall vacancy was 9.8%, up from 9.4%.
“As the COVID-19 numbers increase and with a struggling energy sector, the office market will continue to see vacancies rise, and we expect rental rates to decrease,” Sullivan reported.
“Many office building owners and property management companies will continue making the required changes to keep their tenants in as safe environment as possible.”
Reach Real Estate Editor Richard Mize by email at firstname.lastname@example.org.