Mize: Pandemic-era property winners and others
Economic recovery in commercial real estate in the third quarter, ranked strongest to weakest, looked like this in Oklahoma City: industrial, multifamily, retail, office.
That's my reading of the third-quarter market reports from NAI Sullivan Group. Your mileage may vary, as they say. It is sort of an apples-to-oranges comparison, although apples and oranges actually are substitute goods in a way that different kinds of property usually are not. In other words, if you're looking to buy or rent a house, no warehouse will do.
It's all fruit, to stretch the cliche. Here's the latest on the real estate fruit basket turnover brought to us by the coronavirus and the shock it is giving the economic system. See the detailed reports at https://www.naisullivangroup.com/.
The industrial sector recovered somewhat with net absorption of 314,900 square feet, a nearly 1-million-square-foot swing from the 741,906 square feet of negative absorption in the second quarter, said broker Zac McQueen, who prepared the third-quarter industrial report.
"The vacancy rate also illustrated signs of a recovery,decreasing from 5.4% in Q2 2020 to 4.6% vacancy in Q3 2020. These figures show that the industrial market has a chance to return to pre COVID-19 figures much quicker than anticipated," McQueen wrote.
The average lease rate, he reported, was $6.43 per square foot per year, triple net — tenant pays for property insurance, property taxes, maintenance and utilities — a slight increase from the last quarter.
"This has been a constant figure in the Oklahoma City market for a few years and has steadily increased throughout 2020 even with the economic fallout of COVID-19," McQueen said.
He recorded 53 sales transactions in the third quarter totaling $54,028,000, the largest for $15.2 million at 6101 SW 44, to be used as an Amazon delivery station.
"The overall results of Q3 2020 are very promising signs that Oklahoma is bouncing back quickly from the economic shock seen in the first two quarters of 2020," McQueen wrote. "Specifically, the industrial product type continues to prove its resilience to uncertain macroeconomic conditions created by the COVID-19 pandemic compared to other commercial real estate sectors. We hope to continue to see more positive trends as we move forward towards the end of 2020."
The apartment market, unexpectedly, is steady as she goes, said broker Micalyn Wheelwright, who prepared the multifamily report.
"In the beginning of the quarter, many property owners were bracing themselves to take a hit financially when the additional stimulus money came to an end in late July," she wrote. "Surprisingly, the market only saw a slight decrease in overall vacancy rates ... The Moore/Norman submarket continues to have the strongest overall vacancy factor of just 6.3%."
Development fell to 769 units under construction, down about 63% from 2,108 units in the second quarter, which helped hold vacancy to 9.9%, Wheelwright reported.
The largest multifamily project under way is the 371-unit Thirty-Five Degrees North, 2800 NW 192, scheduled to be complete late next year, and Hines/Humphreys Capital's 325-unit The Residences at Classen Curve, 6259-6297 N Western Ave., set for delivery in early 2022.
Investment sales doubled in the third quarter to 19 transactions $31,791,667.
Last summer brought a gradual reopening of retail and along with it a slew of questions, said David Hartnack, NAI Sullivan vice president for retail, who prepared the retail report.
"By the beginning of October almost all restaurants, fitness facilities, and retail stores had opened to customers, but doubts remain about whether sales will return to pre-pandemic levels," he wrote. "Local nondrive-thru restaurants are still reporting sales to be down 30-40% from where they should be this time of year. This reduction in volume could cause concerns for landlords who are now asking tenants to pay back rent abatements from earlier in the year."
Vacancies are expected to rise in the fourth quarter as weaker tenants fail, he wrote.
"While the future of local independent retailers remains in question, national retailers appear to be looking for new sites again," Hartnack wrote. "We have seen the announcement of a large new development at (NW) 178th & Pennsylvania Avenue which could bring 125,000-150,000 SF of new retail space to the north Oklahoma City trade area, including a new Sprout’s grocery."
That project is Shops at Edmond, in its preliminary stages by Burk Collins Co., which is based in Fort Worth, Texas, but has deep roots in Oklahoma.
The third quarter was the first quarter in a row to see net negative absorption, for a total of 1.5 million square feet, pushing vacancy to 10.7% and letting the average lease rate slip 1.8%, said Amanda Sullivan, who prepared the office report.
"The North and Northwest submarkets are struggling due to the low price of oil since the majority of oil and gas companies are situated in the area," she wrote. "Many of these companies have experienced mergers and consolidations, finding themselves holding on to excess space or shadow space. When this space hits the market, we will see a dramatic increase in space."