How to till downtown office space: interesting take

[betts]

From the DOK:

Leased common denominators
Improvements inside, attractions outside help fill downtown offices

By Richard Mize
Real Estate Editor

For all its recent successes, Oklahoma City's downtown office market ended 2007 first in vacancy and next to last in rent among eight big cities in this part of the country, year-end market reports show. The reasons, brokers said, are as close as the nearest office lobby — and just down the street.

What landlords put into offices in tenant improvements, and what central business districts provide in the way of living, eating, entertainment and the arts, have more to do with office occupancy and rental rates than what goes on inside the offices, they said. That's how brokers in Oklahoma City, Tulsa and Denver interpreted year-end reports from CB Richard Ellis.

The Oklahoman reviewed office vacancy and rent rates for central business districts — across all classes of property, from Class A finest to Class C poorest — for Oklahoma City, Tulsa, Dallas, Denver, Houston, Kansas City, Mo., St. Louis and Memphis, Tenn. Houston and Denver had the highest downtown rent rates, with averages of $29.82 per square foot per year in Houston and $26.22 in Denver. Tulsa had the lowest, with $12.47. Not surprisingly, Houston's office vacancy was lowest, at 8.9 percent, followed closely by Denver at 9.1 percent. Oklahoma City's high rate of 27.6 percent was followed closely by Dallas with 26.6 percent.

In Oklahoma City and Tulsa, high downtown vacancy and relatively low average rent stem from the high proportion of vacant Class C space. Empty third-rate space accounted for more than half of the vacancy in both cities. Having so much undesirable space — considered poor either for location, functionality, maintenance or management — makes it even more important for landowners to be willing to spend money to attract tenants, said Mary Martin, Tulsa office specialist and first vice president and principal of CB Richard Ellis-Oklahoma. Too many property owners, she said, especially out-of-town landlords, let properties decline. Many don't realize that "$10 in tenant improvements doesn't buy what it did five or 10 years ago,” and that it takes serious investment and concessions to fill space in a high-vacancy market.

Landlords sometimes have to "buy a tenant” in a tenant's market to land a lease, said Brent Conway, an Oklahoma City office specialist with CB Richard Ellis-Oklahoma. "That changes — and we're seeing it here to a degree — as the market tightens,” he said. "Depending on the project and the size of the tenant, a landlord in any market will look to their bottom line. If money spent equals a greater return in the end — then they won't hesitate.”

Of course, that's inside baseball. The other things that lure office tenants downtown, he said, are eats, drinks, arts and entertainments, like baseball, such as the Oklahoma RedHawks. And the other attractions of Bricktown and the arts district. And, he said, basketball, which is why high hopes were pinned on Tuesday's vote to continue a city sales tax to fund improvements to the Ford Center as a lure for an NBA team.

And baseball, such as the Colorado Rockies, the Major League baseball team that is just one of the attractions Denver has to draw people to its downtown and keep downtown workers there after work."Denver has emerged as a ‘24-hour city' over the last few years as a result of significant public and private investment including mass transit-light rail, streetscapes, major retail and entertainment facilities, cultural facilities and the Convention Center, as well as new residential and commercial projects,” said Ethan Reed, marketing and research manager for CB Richard Ellis in Denver.

"Denver's highly educated and skilled workforce is drawn to the (central business district) and companies are willing to make the investment to have a prominent, well located office that caters to the lifestyle of its employees,” Reed said.

Tulsa continues to struggle to meet those kinds of corporate needs, although the BOK Arena and other improvements downtown are under way, Martin said.

Oklahoma City is well on its way, Conway said.

The still-incubating Core-to-Shore project — the city's planned revitalization of a large swath between downtown and the eventual relocation of Interstate 40 — and voters' approval this week of millions of dollars in improvements to the Ford Center will help.

But, he said, only a combination of improvements, inside and out, will light up dark downtown office space.

[jbrown84]

Oklahoma City's high rate of 27.6 percent was followed closely by Dallas with 26.6 percent.

That's interesting. I was just in Dallas over the weekend. While they have some really great inner city areas nearby downtown, I think they have as big of a problem as we do with drawing people into the CBD itself after hours. There are a few restaurants, and some historic hotels, but when I've been down there at night and on the weekend, it's not very lively.