In a word, Price Edwards and Company would have best characterized the feeling surrounding the Oklahoma City office market at the end of 2020 as “uncertain.” Companies worked to quickly adjust to the uncharted landscape brought on by a global pandemic. Remote work solutions, tiered scheduling, hoteling space, and rightsizing all became a part of everyday vernacular in the OKC office market. Companies looking to adjust their working environment to respond to COVID19 resulted in the use, need, and efficiency for office space coming under intense examination.
The good news is that the first half of 2021 has provided a look into the resiliency of the Oklahoma City office market. The Central Business District, Midtown, North, and Northwest submarkets all posted positive absorption, with the West submarket being the only market with negative absorption. The total absorption for the OKC market was 375,743 square feet resulting in the overall vacancy rate decreasing from 24.8% to 22.9%. Overall market rental rates stayed relatively the same, moving slightly from $19.53 per SF to $19.59 per SF.
The Northwest submarket continues to be one of the stronger Oklahoma City submarkets having the highest positive absorption of 239,184 square feet. Oklahoma awarded statewide Medicaid management contracts to several companies, which accounts for nearly 120,000 square feet of this absorption. The Northwest submarket was hit particularly hard at the onset of COVID19 last year, with the vacancy rate increasing from 18.4% to 26.6%. The positive absorption experienced by the Northwest submarket drove down the vacancy rate 4.5% points to 22.1%, which is an excellent sign for Oklahoma City’s largest submarket.
Oklahoma City’s North submarket vacancy rate decreased over the first half of 2021 by absorbing 149,419 square feet, from 26.7% to 23.4%. Rental rates remained relatively the same compared to the end of the year 2020 figures averaging out at $19.27 per square foot overall. A reassuring sign from our data is that this positive movement was not a direct result of one or two deals as outliers but rather the result of multiple leases spread out over the Class A and B inventory of the North submarket. The narrative that will continue to underline the North Submarket is the future of the Chesapeake Campus. The first half of 2021 saw the company emerge from bankruptcy and actively pursue outside investors to repurpose or utilize the components of the campus it currently does not need. The Chesapeake Campus is approximately 1.3 million square feet and presently does not impact our market survey because it is considered owner-occupied. How future investors will utilize the facility will have a significant impact given the campus would account for 30% of the entire north submarket.
2021 began with the issuance of COVID19 vaccines, which restored confidence in returning to the workplace. However, it seems with new variants in the virus, the second half of 2021 will continue to have companies evaluate their office needs while trying to define what the “new normal” means to them. Oil and natural gas prices have been climbing steadily in 2021, which is always a positive for the Oklahoma City office market. We suspect there will be carried over benefit to the office market in the second half of 2021. We expect to see rental rates hold steady for the second half of 2021, with landlords offering more in other lease concessions to attract tenants. While the first half of 2021 posted positive absorption, we would suspect that the actual repercussions of the effects of the COVID19 virus are still relatively unknown. Multiple national sources have cited record increases in sublease space availability nationwide. These totals range between 140 to 150 million square feet of available sublease space. Simply put there is a large amount of space currently under lease not being reported as vacant but going unused.
If companies are unsuccessful in their subleasing attempts before their lease expiration, they will make the necessary decisions to right-size their space at the time of renegotiating their lease, contributing to higher vacancy rates across the Oklahoma City office market. After a whirlwind of a year in 2020, we will gladly take this positive news for this first half of 2021 and move forward cautiously optimistic.