October 29, 2010
This year has been another rough one for commercial real estate.
Talk of higher vacancies, difficulties in finding tenants and a drought of investment property buyers were a common theme among the speakers at the annual Tulsa Trends commercial real estate conference, presented Thursday at the Southern Hills Marriott by the Tulsa chapter of the National Association of Industrial and Office Properties.
But most of the speakers, including Tanda Francis of Beacon Commercial Group, were optimistic that Tulsa’s hit bottom, and that things will gradually start to improve in the near future.
“I think we’ve already seen the worst,” she said.
The slowdown has put the brakes on new stores and restaurants, as Katie Plohocky of Walman Commercial Real Estate Services said vacancies for retail buildings have remained stagnant at 12.95 percent. But what’s been bad for national companies have provided opportunities for local and regional concepts.
“As national tenants continue to close, existing tenants are working to reposition themselves in the market,” she said.
Construction of new retail centers slowed to only 100,000 new square feet last year, and may remain relatively low in the future as multiple projects are delayed to 2012 and 2013, Plohocky said.
But there are pockets of development. Downtown Tulsa has become much more active with the construction of the BOK Center and ONEOK Field, and the area around Memorial Drive south of 101st Street continues to draw new buildings and tenants.
She said Lifetime Fitness still plans to build a large new facility in the area, though it may not happen until 2012.
The area near Tulsa Hills is continuing to see more construction in and around the shopping center, with a Sam’s Club well under way and Staples intending to build a new office supply store there, Plohocky said.
Broken Arrow is also seeing new development along the Broken Arrow Expressway, and Jenks has Village on Main under construction and the River District mixed-use project under continued development.
The office market has been especially stagnant overall in the last year, Francis said. Occupancy has increased slightly to 76.8 percent, though it’s still some of the lowest rates the Tulsa area has seen since 1991.
There have been few major building sales – none investment purposes – and relatively little construction. Francis said building owners are having to work hard to gain tenants.
“Landlords should take some capital money and spend it on what prospective tenants see when they walk in the door.”
However, she’s seeing encouraging signs for the near future.
The One Place mixed-use project under development near downtown’s BOK Center has leased 220,000 square feet of its 250,000 square feet to Cimarex Energy, and the Village on Main mixed-use development under construction in Jenks has active negotiations to fill 180,000 square feet out of its 300,000-square-foot office total.
Conversely, local industrial properties have the highest vacancy rates in 17 years at 10.4 percent, said Bob Pielsticker of CB Richard Ellis/Oklahoma.
“Companies are producing the same amount of inventory with a smaller workforce,” he said.
But Pielsticker expects vacancies to level off next year, thanks to increasing tenant interest and very little construction.
Relatively few buildings are being sold, as most owners and investors are choosing to sit tight, he said.
Large apartment complexes are seeing more tenants, as Scott Case of Case & Associates estimated the current Tulsa-area occupancy is now 93.5 percent, up from 89 percent at the start of the year.
He said the improvement was due to the end of the homebuyer tax credits, as well as seasonal quirks.
“We always expect a 2 percent drop in the winter,” he said. “We don’t know where they go, they just go.”
Rents are increasing slightly, but apartments are still having to offer concessions to draw in tenants. Case said his company has been giving away cash, iPads and TVs, and expects concessions will stay through next year even as occupancy and rents rise over 2011.
This year most of the new construction has come from Case themselves, with the 308-unit Park at Mission Hills in Broken Arrow, the 232-unit Villas at Coffee Creek in Owasso and the 316-unit Tuscany Hills in Tulsa.
The 234-unit Riverwalk Crossing apartments were finished by John and Stuart Price some months back, but the apartments have been entirely rented by Schlumberger Technology Corp. of Houston for its employees for the next 10 years, Case said.
Sales of complexes to investors are down, with only 1,435 units sold so far this year compared to 2,737 in 2009.
“We figured there would be some distressed properties coming online, but people are holding onto them,” Case said. “There haven’t been the good deals people were expecting.”