Class A office space downtown is tighter than ever, and lease rates are at an all-time high, according to Price Edwards & Co.
Vacancy shrunk from 9.3 percent to 1.4 percent over the first half of 2014, sending average rents to a record $21.41 per square foot per year, the commercial realty firm reported in its midyear office market summary.
“The market is healthy as ever. A key to that growth is downtown absorption — and it’s not like that was any one event, just the accumulation of every building seeming to do just a little bit better,” said managing broker Craig Tucker, an office specialist.
A possible shadow is creeping toward the central business district, though: some 300,000-400,000 square feet of new space under construction to be anchored by Oklahoma Gas and Electric Co., plus the possibility of two additional office towers on the west side of downtown.
Testing the market
New skyscrapers will test the market with sky-high rent rates — “at least 30 bucks a foot probably,” Tucker said, and “the ones that are being renovated now are going to be in the high 20s.”
It will be a shock to tenants used to paying the going Class A rate of $21.50 per square foot, he said.
“The key is going to be: Will Class A tenants step up to those higher rates? But if you look just at the last year, Class A rates have grown $2 a square foot. So it’s easy to conceive that when all these projects come online in two years, three years, we’re already going to be at 25 to 26 bucks in existing buildings,” Tucker said.
In addition, evolution in the way companies and their employees use office space is changing pricing tolerance and expectations, he said.
“You can actually go to a $30-per-square-foot building and be at less rent than your current deals because you’re going to have cost savings,” Tucker said. “You’re going to be able to plan more efficiently because you’re currently in an old office that you probably designed 15 or 20 years ago, and we just don’t office that way anymore.