Numbers vs Local Market Expertise

11.12.2019

The Commercial Real Estate industry uses a number of statistical-based metrics to describe the overall health and vitality of local real estate markets or sectors. Sometimes these numbers should not be taken at “face value”. Most often quoted are vacancy and net-absorption. While vacancy seems straightforward, the wide array of industrial building designs and functions means that the oft-quoted overall vacancy rate is actually a blend of various building types. In the Oklahoma City market right now the availability of small to moderate-sized grade-level buildings with an acre or more of graveled yard space is virtually non-existent. Meanwhile, the vacancy in multi-tenant investment-grade industrial facilities is 17%. Like I said, “face value”.

The second metric is net absorption. This is the amount of space added to or removed from availability in a certain time period. “Availability” is the actual amount of vacant “For Lease” (including sublease) space, plus space actively marketed as “For Sale” (vacant or to be vacated upon sale). Positive net absorption means that there has been a net decline in the amount of available space, negative means an increase. The complicating factor in this equation is new construction dedicated to a specific owner or tenant. Newly constructed dedicated space completed and occupied has to be added to the database and counted as absorbed. Large additions can obscure other market trends. 

Within the last twelve months, Amazon and Hobby Lobby constructed and occupied over 3.5 million square feet in the local market. This is great for OKC and will hopefully continue. The resulting calculations yield a net positive absorption for the overall market of 1.1 million square feet. However, the two big projects mentioned did not compete against other properties for occupancy. Subtracting them from the absorption calculation yields a net negative absorption for the last twelve months of 2.2 million square feet. Numbers must always be filtered by local-market expertise.