How OKC real estate markets dealt with COVID, what to expect in 2022

COVID-19 hit commercial real estate — like everything else — hard in 2020, and each property sector recovered, with some soaring, in 2021.

Here’s what happened in Oklahoma City, and what to expect for the rest of 2022, according to local commercial realty brokerages.

The shape of shopping and the retail sector of the Oklahoma City economy was “stable but unremarkable,” as leading brokerage Price Edwards & Co. put it, at the end of 2019.

Then came COVID-19 and a “brutal” plunge in store and restaurant sales — especially restaurant sales, as shutdowns and social distancing made it impossible to eat out.

But there were winners, Price Edwards said: grocery stores, dollar stores, Walmart, Target, other discount stores, take-out restaurants, “and of course, Amazon.”

Losers were fashion, entertainment venues, personal services, sit-down eat-in restaurants, gyms, fitness centers and theaters, the firm said.

By summer 2020, just three months into the pandemic, “Oklahoma has opened back up, most retailers are open and have generally reported better than expected sales, though not at pre-pandemic levels,” Price Edwards reported then.

Now, businesses have adapted.

Ghost kitchens emerged — those preparing and selling food for delivery only. Regular restaurants changed with the times, offering outdoor seating and more spacious seating inside. Walkability, street viability and the outdoors in general took on more importance.

Price Edwards expects a surge in retail activity through 2022.

Warehousing and industrial property outlook for Oklahoma City in 2022

In late 2019, “supply chain” was still a term used mostly by logistics specialists. Its relationship to warehousing and industrial property, and ties to retail and consumer goods, were not daily news topics.

Then came COVID and the shop-from-home movement exploded, tying retail activity to industrial property in new ways. But the outlook for industrial, except for big bulk warehouses, didn’t seem bright the first summer pandemic.

“As of this writing … multi-tenant industrial properties have continued the declining vacancy trend seen over the past two years,” Price Edwards then reported. “The bulk-warehouse sector is the exception this year.

“Bulk-warehouse is seen as an important indicator for the economy given its central role in the supply chain, support of retail business and tendency to be occupied by national and international tenants. Most warehouse operations are considered essential businesses and remained in operation during the lockdown, although there have been upstream supply-chain disruptions.”

Here, a few lease transactions were postponed.

“It is reasonable to expect some vacancy increase in the next 12 months as a result of corporate bankruptcies, especially in the retail sector,” Price Edwards reported.

A year later, by summer 2021, the opposite had happened: Industrial vacancy had decreased to 8.38% from 14.93%, the firm said, thanks mainly to pandemic-fueled e-commerce.

“Locally, there has been a hiatus in speculative warehouse construction which is now being reversed with several active projects in the metro area,” Price Edwards reported. “This is definitely a ‘landlord’s market’ and, excepting major events in the national economy, the market shows no signs of changing in the foreseeable future.”

Now, industrial vacancy is at a record low, and rents at a record high nationally and the dearth of space here led to an industrial building boom.

“Oklahoma City has seen much of this national success locally,” industrial specialist Zac McQueen wrote in a report by NAI Sullivan Group. “Vacancy rates continue to be extremely low, and construction is finally starting to respond with the largest purely speculative Class A industrial development ever to be constructed in the city. Many hope and expect this will bring even more jobs and growth to the city’s national distribution footprint.”

Apartment rent, multifamily property market outlook for OKC in 2022

Multifamily development and investment was hot at the end of 2019, especially investment. Out-of-state capital had been pouring into Oklahoma and scooping up apartment complexes for years.

Then COVID hit, and soon the sector collectively gasped at the prospect of millions of suddenly jobless renters breaking leases or getting evicted. However, apartments came out mostly unscathed.

Renters struggled in 2020, but here they mostly kept their rent paid up, and it showed in the apartment sales for the year. Investors kept investing in them.

“The roller coaster ride may have been more emotional than financial,” said Mike Buhl, broker-owner of multifamily property brokerage Commercial Realty Resources Co. in Norman. “The effects of COVID‐19 on the multifamily sector have so far proven to be more of an interruption than a trend. … Renters have prioritized rent payments.”

Occupancy remained firm. Rents went on the rise.

Now, with local unemployment low, renters are still keeping their rent paid, and investors are investing more than ever — nearly $1 billion for apartment properties here in 2021, Buhl reported.

Renters are still rising, and people living in complexes that have recently changed hands, and are being renovated and improved, especially, should prepare for rent increases.

The median monthly rent for a one-bedroom apartment in Oklahoma City was $840 in February, up 9.1% compared with the same time last year; and the median for a two-bedroom unit was $980, up 8.9% year over year, according to Zumper, a San Francisco-based online rental marketplace.

However, Oklahoma City apartment rents remain affordable compared with much of the country, ranking as the 89th most expensive rental market in the nation, Zumper reported.

Office market outlook for OKC in 2022

The Oklahoma City office market was still struggling from the 2014-2015 plunge in crude oil prices two-plus years ago.

Then COVID hit, and it didn’t help. Overall vacancy rose from around 20% to nearly 25% at the end of 2020, according to Price Edwards & Co., with the north and northwest areas of the city, which are “particularly heavy in energy companies,” hit hardest.

“Which begs the question of what had the largest impact on the market: the pandemic or the energy slump? The initial response would be the energy slump due to pronounced staffing reductions and a few bankruptcies, but the true impact of the pandemic likely will not be known for another year or two as most non-energy users continue to operate with a full staff even if that staff is working from home,” the firm reported.

After another year of the pandemic, the market saw reversals from the immediate shock of COVID-19, even in the north and northwest areas of the city, the firm said. But at the end of 2021, other challenges loomed.

“There is no doubt that the 2021 office market data exceeded our expectations, but there are still areas that cause concern,” the firm reported. “Inflation rose 7% over the past year, the highest since 1982.”

And with excess space on the market despite some recovery, tenants have the advantage over landlords in new lease negotiations.

“We believe that we are still in a ‘tenant’s market.’ There is still over 4 million square feet of office supply in our market, and while landlords have been able to hold rental rates steady, the cost to acquire new tenancy is at a premium,” Price Edwards said.

Then there’s an issue that affects all construction: tight labor and rising, occasionally spiking, costs for building materials, made more complicated by supply chain breaks.

The excess space casts something of a pall over the market for leased office space, hindering landlords’ ability to raise lease rates.

“Combine this condition with the rising cost of construction and tenants still desiring turnkey construction for new office space, and landlords could see reduced margins to the point where a deal won’t make economic sense,” Price Edwards said. “As a result, looking ahead to 2022, we expect rental rates to remain relatively flat across all submarkets, with landlords continuing to incentivize tenants through different lease concessions.”

Senior Business Writer Richard Mize has covered housing, construction, commercial real estate, and related topics for the newspaper and Oklahoman.com since 1999. Contact him at [email protected].