Warehouse-distribution space for lease was tight even before the May tornadoes, and nearly four months later landlords and tenants are still in repair mode.
Roofing crews and displaced lessees still are common, especially in southwest Oklahoma City, which has most of the city's multitenant, investment-grade industrial property and bore the brunt of the May 31 tornado and storms.
An unknown number of industrial tenants had to move to previously vacant space, according to Price Edwards & Co. Relocations and the use of space by disaster relief agencies “combined to push the vacancy numbers to unprecedented lows,” the firm said in its midyear industrial market summary.
“Many of the displaced tenants will revert to their original space once repairs or rebuilding is completed and most if not all of the relief agencies will vacate their temporary space with time,” Price Edwards said.
In the meantime, the disaster has scrambled the statistics.
“Calculation of the long-term vacancy in multitenant industrial buildings is just not possible at this time. We publish this report with the acknowledgment that some vacancies were reported before the storms, and some after,” Price Edwards said. “In discussing the calculated vacancy, we will try to arrive at a likely range for long-term vacancy, essentially the vacancy after the emergency relocations return to their original facilities.
“Whether or not the actual numbers reported here are correct, the overreaching conclusion is that this market is at very low vacancies, and is likely to remain so for the foreseeable future.”
Recovery is similar to that in residential neighborhoods despite the huge roof sizes, which come in tens or hundreds of thousands of square feet.
“We're moving along, but these things take time, especially in the commercial arena where you have large buildings involved. It takes time to work through the insurance claims, and then it takes time to schedule the roofers because they're all very busy,” said Bob Puckett, industrial property broker with Price Edwards.
Bulk warehouse space, especially, was sucked up after the storms, he said.
“Basically, everything that was on the market, especially among the portfolio properties, was immediately absorbed as (owners) moved their tenants into their vacant buildings while the roofs were repaired,” Puckett said. “Those tenants were still paying the same amount as they did in their primary leases. However, the lowered availability has resulted in higher lease rates, and we have seen a general trend toward higher lease rates over the past 12 months.”
Storm damage aside, speculative development is expected “by those few developers who can finance such projects,” Price Edwards said.
• Price Edwards estimated the vacancy of bulk warehouse space — ceiling height 24 feet and higher — at 5 percent to 6 percent. Vacancy had plummeted from 20.4 percent in 2011 to 6.5 percent in 2012. The tightest area was the southwest submarket with a vacancy of 2.7 percent.
• Flex space vacancy was estimated at 8 percent to 9 percent, down from 11 percent in 2012. Flex space is suitable for a mix of office, warehouse, lab and showroom areas and generally has ceiling height of 18 feet or less, but includes some newer properties with higher ceilings if they are marketed as flex space.
• Vacancy of service warehouse space — ceiling height 18 to 23 feet — had an estimated vacancy of 12.1 percent, up from 9.5 percent in 2012. Price Edwards noted that the smallest square footage of the industrial property types, and that once sizable vacancy can greatly change the calculation.
Puckett said that an ordeal like scrambling to relocate materials from a damaged warehouse to space untouched by wind and rain can test relationships.
“That depends on how the landlord handles the emergency. If the landlord handles it, meets all the tenant's needs, gets them into the temporary space as quickly as possible, then you end up with a happy tenant. If the landlord does not do those things and does not take care of the tenant, then you can end up with an unhappy tenant,” he said.