View Full Version : OKC retail vacancy hits 3 year high

02-17-2009, 10:21 AM
At least we're not Tulsa, who hit a 17 year high for retail vacancy...
Tulsa retail vacancy rates hit 17-year high; Oklahoma City at three-year high
by Kirby Lee Davis
February 17, 2009

TULSA – Vacancy rates in Tulsa’s retail sector ended 2008 at a 17-year high of 14.86 percent, according to new reports by CB Richard Ellis of Oklahoma.

Oklahoma City retail vacancies rose to a three-year high of 12.2 percent as tightening credit and declining sales nationwide shuttered several chains and forced others to suspend expansions.

“While the Oklahoma City-area economy outperforms many markets across the country, the overall weakness among national retailers and tight credit markets are more than enough to slow down retail development and the absorption of the market’s existing vacancy,” said Stuart Graham, a senior associate at CBRE’s Oklahoma City office.

Even in the face of emptying storefronts and ongoing construction, both markets continued to enjoy stable or rising lease rates through 2008. But the CBRE analysts doubt that will linger long, with many national retailers threatening to pull out if not allowed to cut lease rates or space requirements.

“Tenants know, and the word is spreading like wildfire, that they can renegotiate,” said Mendy Parish, a senior associate with CBRE’s Tulsa office.

She said that will impact not only existing complexes but the estimated 800,000 square feet of projects coming online this year, like the lifestyle center Plaza del Sol in south Tulsa, the scaled-back Shops at Broken Arrow or the Target center in Bixby.

“I think that everyone’s going to struggle to get fully tenanted,” Parish said.

“I think we’re going to have a lot of vacancy and second-generation space will suffer.”

The two reports feature contrasting approaches. The Tulsa summary details all Tulsa retail space in buildings or complexes above 10,000 square feet. The Oklahoma City report samples 12.1 million square feet to form an estimate of the metro area’s overall activity.

“The science proves out when compared to other methods,” said Graham, although he admitted this approach creates the potential for mistakes.

For example, CBRE’s Oklahoma City report does not include the 1.2-million-square-foot Crossroads Mall, which faces both foreclosure and a growing number of vacancies.

“If you’re not counting Crossroads, that’s going to add another half a percent right there,” said analyst Darren Currin, vice president and research director for OKC Property Research LLC.

But the real impact will come with market changes felt or foretold since January.

With the impending closures of Circuit City and other free-standing big-boxes, Graham estimated Oklahoma City’s retail vacancy rate could rise as much as 3 percent.

Vacancy rates in Tulsa’s 18.26 million square feet of retail space, which includes Tulsa Hills for the first time, closed 2008 at 14.86 percent, up from 13.8 percent at the end of 2007 and 14.42 at mid-2008. Parish said Tulsa has not seen higher marks since Coldwell Banker recorded 16.5 percent in 1992, the first year of its survey.

“Lack of consumer confidence has been the narrative for 2008,” Parish said. “By all accounts holiday sales for retailers were the worst in several decades.”

While that put a sizeable burden on Class A space, cutting its occupancy rate to 89.39 percent – it has stood as strong as 96.3 percent just 18 months ago – Parish said Tulsa’s Class B space felt the biggest blow, its vacancy rate tumbling to 21.78 percent. That more than doubled its June 2007 level.

Despite rising vacancies, Parish charted a 7-percent rise in overall Tulsa retail lease rates from mid-2008 to $11.44 per square foot. Graham’s report found

average rates up 2 percent to $11.39.

“Looking ahead, lease rates are expected to be largely flat,” Parish said. “This flattening is expected to impact Class A property disproportionately.”

Both surveys projected some niche retailers, from quick-serve restaurants and drugstores to discount retailers like Wal-Mart and Target, will continue their expansion plans in 2009.

“Although some restaurants are struggling, several new concepts are doing their initial searches in the market, including Panda Express, Genghis Grill and Smashburger,” said Parish.

Since these newcomers are more cautious, she suggested that could give Class A properties an edge. But existing retailers may seek to reposition themselves.

“Small, service retailers, like phone stores, cleaners, tax preparation and brokerage firms, will look to take advantage of softening rents,” Graham said.

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