The Oklahoma City economy and the Oklahoma City industrial market have shown continued improvement during 2005.  During the nationwide economic downturn from 2001 to 2003, the Oklahoma City metropolitan area experienced similar challenges as other cities with the loss of manufacturing jobs and some bankruptcies.  These challenges created a higher vacancy in industrial space.  However, industrial construction continued at a strong pace, and during the 5-year period from 2000 through 2005, industrial construction has averaged approximately 1,800,000 sq.ft. per year. 

New Construction

       The majority of the permits for industrial facilities in the last three years have been for owner occupants or build-to-suit tenants, including Quadgraphics, Johnson Controls, Hobby Lobby, U.S. FoodService, Ben E. Keith Company, Willamette Paper, Nomaco, etc.  Several other major warehouses have been developed on a build-to-suit basis with the majority of the space being pre-leased before construction.  During the period from 2003 to 2005, very little speculative construction was undertaken.

Rental Rates

       Rental rates for new Class-A buildings are quoted in the $3.00 to $3.75 per sq.ft. range.  Rental rates for older, but good-quality buildings (Class-B buildings) are quoted from approximately $2.25 to $2.75 per sq.ft.  These quoted rates would be on a NNN (triple net) basis with pass-through operating expenses and CAM averaging approximately 45¢ to 80¢ per sq.ft.

Announcement from General Motors

       In November 2005, General Motors announced that it would close its Oklahoma City manufacturing facility during the first quarter of 2006.  In addition to the 2,000,000 sq.ft. General Motors facility, there are various warehouses owned by or leased to vendors that supply General Motors.  It is anticipated that approximately 500,000 to 600,000 sq.ft. of additional warehouse or manufacturing space will be added to the market in the first half of 2006.  It is uncertain as to how this additional supply of space will affect the market near term, but it is anticipated that the vacancy rate will increase.

Industrial Land

       Demand for fully-served industrial sites has continued strong throughout the last few years.  Development costs for subdivisions ranging in size from 20 to 60 acres for small industrial lots are approximately $30,000 per acre.  Sites in fully-developed industrial parks in the 1/2- to 2-acre size range in price from $1.50 to $3.00 per sq.ft.  Fully-served sites from 5 to 10 acres, but not platted, can be purchased for approximately 75¢ to $1.25 per sq.ft.  Larger industrial sites ranging from 20 to 80 acres can be purchased for $20,000 to $40,000 per acre.  These prices are for properties with all utilities to the perimeter of the site, or in close proximity to the site, with easy access to major industrial boulevards and the interstate highway system.

Industrial Sales Activity

       During 2005, there were a number of industrial warehouse sales.  CalEast Industrial Investors, L.L.C. sold a nationwide package of industrial properties, including 32 buildings in Oklahoma City totaling approximately 2,188,000 sq.ft.  The buyer was RREEF, a division of D.B. Real Estate, an affiliate of Deutsche Asset Management.  This package of buildings included various distribution warehouses in addition to some service centers.  Later in the year, Prologis (Security Capital) sold a package of buildings in Oklahoma City to the Thackeray Group of Dallas.  In addition, there were various individual buildings sold to investors or users, including a purchase by Nestlé Purina of a 140,000 sq.ft. warehouse located on East Memorial Road and several smaller warehouses containing from 40,000 to 100,000 sq.ft.  Prices for older, but good-quality warehouses range from $17 to $27 per sq.ft.  Newer buildings purchased for investment have sold in the last 2 years with price ranges from $30 to $40 per sq.ft.  The upper end of this price range, near $40 per sq.ft., represents building purchases containing 25,000 to 50,000 sq.ft. 

       It is anticipated that the demand for investment industrial properties will remain strong with a limited supply of properties available.

Decline in Manufacturing Employment

       As reported by the Oklahoma Employment Security Commission, in calendar year 1999, manufacturing employment in the Oklahoma City MSA was 53,500.  The number of employees involved in manufacturing has declined since that time, and in calendar year 2005, manufacturing employment had declined to approximately 38,000.  This decrease in manufacturing employment has been a national trend, and Oklahoma City has followed the trend.  The 2005 manufacturing and employment number does not include the anticipated loss of General Motors direct jobs and General Motors vendor jobs in early 2006.  This decrease in manufacturing jobs has had an adverse effect on demand for large industrial buildings.

Summary

       In January 2004, Expansion Management Magazine named Oklahoma City as the 9th hottest area for economic growth and development in the United States.  This recognition in Expansion Management Magazine is important because it is targeted directly to decision makers who are active in the corporate relocation process.  The $2,000,000,000 building boom over the last 5 years in the downtown area, with both public and private construction, has kept the economy strong.  Another approximate $1,000,000,000 of new construction, including the MAPS for Kids projects, will keep the construction industry strong during the next few years.  It is anticipated that the Oklahoma City economy can absorb the approximate 5,000 direct and indirect employee job losses from the General Motors plant closure, although it may take a couple of years to absorb this lost employment.  Current unemployment stands at 4%.  The oil and gas industry has a strong and positive influence on the Oklahoma City economy.  Internal growth from existing, and some new, industries should be a positive for the industrial real estate market.  It is anticipated that the industrial market during 2006 will be a balanced market with stable rental rates, but the market will have an adequate supply of older and newer buildings available.

       Locally-based businesses will expand, and new companies will locate in Oklahoma City.  Oklahoma City’s future is bright; industrial real estate will continue to shine for owner/occupants and investors; and tenants will have an adequate supply of new and older functional space at affordable rates from which to choose.