Commercial Real Estate and Office Space Market in Oklahoma
Thanks to its diverse and resilient industry base and comprehensive range of business incentives, Oklahoma is a solid choice for companies looking to establish their presence in the region or expand their business operations (1). This report provides an overview of the commercial property market that may be useful to companies looking to move or set up operations in Oklahoma.
Office Space Market
Oklahoma boasts a large amount of jobs in the public sector, although other industries of strategic importance now have a solid presence across the state or are growing in importance. These include gas and oil production, transportation, aerospace / aviation, electronic engineering, biotechnology, and telecommunications (2).
These industries have also generated a great deal of activity in the Oklahoma City office market, which is characterized by decreasing vacancy rates, higher rental values, and positive absorption levels following the delivery of nearly 2 million square feet of new office space during 2014. Direct asking prices are well on their way to reaching pre-recession levels, and at the time of writing they averaged $15.51 / sq ft. Vacancy rates dropped to 12.5 per cent during the first half of 2015 (3).
Another notable trend in the Oklahoma City office market involves the high levels of speculative development that are taking place across the city. Researchers at CBRE have pointed out that development levels have not been this high since the 1980s. Much of this activity has been driven by the local energy sector, which has proven to be resilient despite declining commodity prices. Although new office buildings are mostly found in Oklahoma City's CBD, there is also substantial development in the Kilpatrick Turnpike area and in neighboring sub-markets to the northwest of the city center. Vacancy rates in these areas have increased rather dramatically in just a year, reaching record levels of $15.69 / sq ft (4).
In Tulsa, the state's second largest city, the supply of Class A space has been dwindling since 2013, causing vacancy rates to drop to an all-time-low of 3.9 per cent. However, citywide vacancy rates stood at 12 per cent by the end of Q2 2015. Strong demand for office space in Tulsa has been driven by the expansion of the private sector, which added more than 8,800 jobs (many of them office-based) between May 2014 and May 2015. Within the private sector, industries like creative, professional and business services, and oil and gas are the main office space occupiers. Asking rates in Tulsa average $14.43 / sq ft (5).
Retail and Industrial Space Markets
The manufacturing industry is one of the main economic drivers in Oklahoma, since it accounts for nearly 11 per cent of the state's total economic output and provides 8.45 per cent of all jobs, or 142,000 positions. In particular, sub-sectors like machinery, petroleum and metal products, and food processing are among the main occupiers of industrial premises in the state (6).
Class A retail space in Oklahoma city is highly sought after thanks to recent drops in unemployment rates and infrastructure improvements. In addition to the CBD, activity levels are above-average in Midtown, Uptown, and Brickton, whereas new construction is clustered around Classen Curve, the university area, and Chisholm Creek. Asking rates average $10.98 / sq ft and vacancy rates are just over 7.5 per cent (7).
The industrial property market in Tulsa is more active and stronger than the local office market, mainly thanks to the rising demand coming from the aerospace and manufacturing sectors. Flex space is virtually unavailable across the city, especially when it comes to floorplates of 5,000-10,000 square feet. Combined average asking rents are $4.46 / sq ft / year and vacancy rates average 8.1 per cent (8).
Tax Breaks, Business Incentives and Support
In 2014, business tax breaks in Oklahoma amounted to more than $760 million, a figure that represents approximately 10 per cent of the state's budget. This pro-business and pro-growth environment has attracted new firms to the area, and currently four local firms have made it to the Fortune 500 list (9). In addition, the Oklahoma Department of Commerce has offered tax savings of up to $1 million to companies willing to relocate.
Among the most important tax incentive schemes we can highlight the Ad-Valorem Tax Exemption (which provides a 5-year tax relief to data centers, manufacturing, R&D, energy, warehouse, and aircraft repair firms), the Small Employer Quality Jobs Program (which provides cash-back incentives for up to 7 years), the Economic Development Pooled Finance Scheme (offering assistance to cover part of the costs of business expansion) (10).
Moreover, tax credits are available to companies involved in aerospace, insurance, renewable energy, ethanol fuel retailers, technology transfers, and to the rehabilitation of certain historic buildings for commercial purposes (11).