People tend to remember just the fun parts of the law of supply and demand.
What we remember is: When demand goes up, price goes up. Or: When demand goes down, price goes down.
Or, we remember: When supply goes up, price goes down. Or: When supply goes down, price goes up.
We tend to forget a few mundane but critical things.
One, “price” in the law of supply and demand refers to the equilibrium price, the point where the amount of supply exactly meets the amount of demand. It's a moving point in an active market.
Two, the law assumes a competitive market, but inefficiencies abound to muck up economic mechanisms.
Three, we forget the assumed constants in the law of supply and demand.
• When demand goes up and supply stays the same, then price goes up.
• When demand goes down and supply stays the same, then price goes down.
• When supply goes up and demand stays the same, then price goes down.
• When supply goes down and demand stays the same, then price goes up.
It's that third thing, the assumed constants, that help explain the oddities that brokers with CB Richard Ellis-Oklahoma found in Oklahoma City retail property markets the first half of the year:
Demand for retail space went up, but rent prices went down.
Why? Because supply did not stay the same. A lot of it was used up.
The most sought-after space, in fact — higher-priced space — was absorbed, leaving relatively more space that was less desirable, therefore priced lower. With higher-priced space taken out of the pool, trusty statistics kicked in and the average asking rents fell for the remaining space.
Across the metro area as a whole, retail occupancy ticked up from 90.12 percent at the first of the year to 90.25 percent at midyear, but despite the increased demand, the average asking rent rate slipped from $10.90 to $10.58 per square foot per year, according to CB Richard Ellis-Oklahoma's Oklahoma City Retail MarketView.
Asking rents slipped, despite increased demand for retail space, in Edmond and Moore-Norman, as well, but brokers compiling the report pointed to the northwest Oklahoma City submarket as “particularly representative of this dynamic.” The average asking rent dropped more than a buck, from $10.73 to $9.51 per square foot.
What happened? Developer Jim Tapp bought West Park Mall in Warr Acres, with plans to raze it and start over. That took the property, some 60,000 square feet of available space, off the market, as well as its “relatively high” (they were being kind) $16-per-square-foot asking rent.
Looking forward? Supply of retail space will not stay the same. The brokers noted that owner-occupied stores are going up, with Dick's Sporting Goods' four stores, north, south, east and west, getting the most buzz. However, not much extra shop space is coming with them, CB Richard Ellis reported.
But other plans are on other drawing boards. Developer Burk Collins, for one, is finally disentangled from Wells Fargo, which had his Shops at Moore shanghaied in court for the past three years. He has plans for space he retained when Inland Real Estate bought the property — and he said he has another big something in the works but isn't quite ready to talk about it.
Supply and demand do take their sweet time.