Downtown Says Thanks, SandRidge

By Richard Mize, The Oklahoman

Oct. 13–Downtown Oklahoma City dodged 450,000 bullets when SandRidge Energy bought the Kerr-McGee tower in June, keeping 450,000 square feet of empty space off the office inventory rolls.

That transaction was the biggest reason the metro-area office market remains as shiny as Leadership Square, with its walls of glass, and as relatively solid as First National Center, with its towering bricks and masonry.

Downtown’s vacancy remained at 27.7 percent, thanks mainly to the SandRidge purchase. The suburban market vacancy fell from 8.8 percent to 8.2 percent, the lowest in a decade. The metro area’s office vacancy dropped from 15.7 percent to 15 percent.

That’s according to Price Edwards & Co.’s midyear office market summary, which effectively celebrates five years of positive trends that were threatened at year four.

SandRidge Energy bought the Kerr-McGee tower, 123 Robert S. Kerr Ave., from Chesapeake Energy in July. Chesapeake bought it from Anadarko Petroleum in The Woodlands, Texas, as part of a huge natural gas deal.

Anadarko had acquired the tower and other property when it bought Kerr-McGee Corp. last year, which formed a dark cloud over the office market. Anadarko didn’t need the tower here and the fear was that the 450,000 square feet of space would hit the market like tons of bricks, and masonry, in one big empty building.

“While the space at the Kerr-McGee tower never hit the inventory rolls, it would have had a crippling effect on the market if a user, such as SandRidge, had not purchased the building,” Price Edwards said in the report.

Thank the energy industry for other gains downtown, as well. Simons Petroleum and Quest Energy leased a combined 70,000 square feet of space at Oklahoma Tower, 210 Park Ave. Price Edwards noted much of that gain will be offset by the vacancy of some 50,000 square feet in The Reserve, the former location of the Federal Reserve Bank branch at 226 Dean A. McGee Ave.

“Due to the high occupancy rates in the suburbs, neither company was able to secure a desirable suburban option and both relocated to the Class A (Oklahoma Tower),” Price Edwards said. “The potential for more suburban companies to relocate downtown is fairly probable as suburban options continue to diminish and the (Central Business District) becomes a more desirable location, due to the many improvements and amenities that have been added over the past several years.”

A similar flight from the suburbs happened 10 years ago when large swaths of contiguous space became relatively scarce outside the core of downtown, said Ford Price, co-founder and co-managing partner of Price Edwards. Price pointed to Ricks Exploration, which took 20,000 square feet of space in Oklahoma Tower in 1998, moving from a 16,000-square-foot space at Enterprise Plaza, 5600 N May Ave.

Aside from individual high-profile purchase and lease transactions, Price said, the steadiness of downtown vacancy and tightening of space in the suburbs portend a bigger positive for the office market: healthy and rising rents.

Price Edwards said Class A office rents in the northwest submarket — North May Avenue and west, north of NW 23 — average $19.78 per square foot per year, with the best buildings fetching rents in the low to mid $20s. However, 100,000 square feet of new Class A space is under construction.

“This submarket’s ability to absorb that space at rental rates of $23 to $25 per square foot will be the true test of the depth of high-end demand,” the Price Edwards report said.

In the north submarket — east of North May — with high-quality office space “almost impossible to find,” Class A space is renting for $20.50 per square foot per year on average, Price Edwards said.

“Even with construction costs rising like they have, and pro formas (with rent assumptions in the low $20s), you’ve got a segment of the market saying, ‘Well, if we’ve got to pay $25 for space, so be it,’” Price said.

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Copyright (c) 2007, The Oklahoman

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