After going through the scare of losing a major corporate anchor like Kerr-McGee Corp., downtown Oklahoma City is set to witness the biggest convergence of energy companies since the oil boom of the early 1980s.
Downtown observers, however, are predicting a different outcome this time around compared to the crash that ensued in 1983, which saw the collapse of hundreds of small petroleum firms and the emptying of one office building after another.
Larry Nichols, executive chairman of Devon Energy Corp., is enjoying witnessing a complete reversal of fortune for downtown now that his company's neighborhood has grown to include SandRidge Energy Inc., which took over the Kerr-McGee campus. They soon will be joined by Continental Resources Inc. and Enogex, an OGE Corp. subsidiary. Combined, the companies ultimately will add almost 1,000 people to the downtown workforce.
Influx of companies
Nichols predicted the influx of new companies when his company announced three years ago it would build a new 50-story downtown headquarters, and he's looking forward to how the addition of new neighbors will boost downtown's future.
“Critical mass is essential for any city to survive and prosper,” Nichols said. “These companies help create a critical mass, and the more large companies that gather downtown, the easier it is to attract employees.”
Tom Ward, chief executive officer at SandRidge, has spent the past two years overseeing a transformation of his company's new headquarters that included the clearance of several empty older buildings, renovation of the historic Braniff Building into offices and retail, and construction of a new amenities building at 120 Robert S. Kerr Ave. that will include restaurants, a fitness center, daycare and meeting rooms.
In recent weeks, Ward has said his company likely will build yet another office building at Robert S. Kerr and Broadway within the next few years.
The pending arrival of Continental and Enogex is welcomed as yet another confirmation that SandRidge made the right choice in locating downtown, Ward said.
“We are very pleased to see the continuing theme of major Oklahoma companies choosing to relocate in downtown Oklahoma City,” Ward said. “The addition of another 1,000 employees will encourage further investment in the retail market — restaurants, shopping — and will continue to increase the vibrancy of the downtown core.”
Mark Beffort, a partner in the group led by Roy Oliver that owns Leadership Square, City Place, Oklahoma and Corporate Towers, is forecasting a Class A/Class B market downtown that will be the best in 30 years.
It's also the healthiest convergence of energy companies located downtown in that time frame as well.
But could history repeat itself?
Oklahoma City's office vacancy downtown was listed at “zero” in 1980 by Spaulding and Slye commercial realtors.
That was at the height of the oil boom. What followed a couple years later was a crash in the energy industry that emptied downtown office towers and left a brand new speculative office building, Leadership Square, desperately searching for tenants.
Vacancy climbed to more than 30 percent and some older buildings, including those recently razed by SandRidge, shut down for good. Beffort witnessed that rise and fall, and he insists this time around is very different.
“The difference this time is there were a lot of local small independents that absorbed the marketplace,” Beffort said. “We have some around today, but they were all leasing 3,000 to 5,000-square-foot blocks of space. Today we have larger companies with more staying power that can withstand the ups and downs of the marketplace. So as oil goes to $110 and then if it goes down to $65, and I'm not sure that it will, they can survive that. I think we're much more stable with the four or five big companies we have today.”
Estimating actual office vacancy when everything settles is still a challenge for downtown observers. Downtown Oklahoma City Inc. President Jane Jenkins is cautiously optimistic the rate could go down to eight percent.
Beffort, who brokered the Enogex lease, estimates the current vacancy rate of 14 percent soon will drop to 12 percent. He doesn't expect the rate to go above 15 percent when Devon completes its move next year.
“There are several things working, though I'm not saying they'll all happen,” Beffort said. “We have a way to go.”
Beffort said the Class C office space is disappearing quickly with SandRidge's removal of older buildings on its campus and conversions the past several years of buildings like Park Harvey and the Montgomery into housing.
He predicts that more Class C building conversions will be announced within the next few months, and that a snapshot comparison of office space now to 1980 will reveal the total square feet is about equal, though very different.
“We cleansed ourselves of nonfunctional space and got us to office space that is good for the 21st century,” Beffort said. “We haven't overbuilt. We adapted, we repositioned buildings for other uses, and we have a pretty good market.”
But will downtown offer enough available space to accommodate future growth? Beffort acknowledges only two large chunks of Class A space will remain after the Continental and Enogex moves; 225,000 square feet in Chase Tower and 100,000 square feet in Corporate Tower.
Beffort believes Leadership Square, the last large speculative office space built downtown (1982) will remain such for a long time to come.
“We may see more a larger office building built, but it will be for an owner occupant,” Beffort said. “But speculative office construction? It's not going to happen. The cost to build in the downtown core is $250 to $300 a foot. Rents are $18. You'll need $25 to make that work. Unless you have someone to bridge that gap, you're not going to see it.”