Office Vacancy Rates Question

[Weatherdemon]

I saw in the TW that downtown Class A vacancies are at %3.06 which seems pretty dang good but that the downtown submarket was at %22.5.

The 22.5 seems high to me but I don't know what the goals (outside of near 100%) would be in these situations.

Can someone enlighten me as to what is good, just OK, and bad in terms of percentage of vacancies of the different classes of office space?

[TheArtist]

 Just from vague recollection I would say around 7-10% vacancy rate is decent.  Below that and usually one would expect some new construction on the horizon, below 4% and you might expect to even see some "speculative" construction.  Caveat... in a city that is growing and Tulsa is for all intents and purposes stagnant, and with our current policies more likely at risk of contraction than growth.  The 22% over all is quite high, but one would hope that some of that will get whittled down as more buildings are turned into living. 

[swake]

Just from vague recollection I would say around 7-10% vacancy rate is decent.  Below that and usually one would expect some new construction on the horizon, below 4% and you might expect to even see some "speculative" construction.  Caveat... in a city that is growing and Tulsa is for all intents and purposes stagnant, and with our current policies more likely at risk of contraction than growth.  The 22% over all is quite high, but one would hope that some of that will get whittled down as more buildings are turned into living. 

The metro is growing about 1% per year and has been for almost a decade. It's not fast growth but it isn't stagnant either.

[rdj]

What you are seeing in all of Tulsa is what the real estate "experts" call a flight to quality.  With the construction of new commercial buildings (office, retail & industrial) grinding to a halt in 2008 the supply of Class A space is limited.  The owners of Class B & C properties are facing the decision of remodeling their property to compete for high quality tenants or complete routine maintenance and be satisfied with second tier tenants.  Downtown has  a large amount of Class B & C space with much more C than B.  That is why the thought of First Place tower being mothballed was so scary to a lot of people.  It is the building most likely to be maintained as Class A that has vacancy.  You'll also see some of that vacancy decline as the empty office buildings are moved to residential. 

[custosnox]

The metro is growing about 1% per year and has been for almost a decade. It's not fast growth but it isn't stagnant either.

Where is this number coming from?

[Hoss]

Where is this number coming from?

Census does population estimates every year.  Key word being *estimates*.

[TheArtist]

The metro is growing about 1% per year and has been for almost a decade. It's not fast growth but it isn't stagnant either.

I would say that's pretty durned stagnant.  If it were business growth or interest rate you wouldn't put much of your stock or money into it, but would go where there is a "better return".  Which sucks "opportunity wise" for many reasons.  Anything negative happen and your in far more trouble than cities and metros that average a higher rate.  And metro growth includes suburban areas that are growing faster which would then mean that the city itself is indeed even more stagnant or even in decline.  That slow a growth also means your likely losing ground development/competitive wise compared to other cities.  I have been here during faster growth times and things are a lot easier, you make more money, can start a business and make a success of it easier, sell art easier and at a higher price, etc. etc.  The slower things get, the harder things become.  Even the perception of others outside the city, people and businesses, changes when things are so slow, they choose to go where things are growing faster.  Sure super hot growth can often preclude a harder decline, BUT, super slow growth isn't exactly peachy and when things do get tough your in danger of not being able to pull out of it.  Many of the fast growing cities, like Austin, though they fell harder for a couple of years, are again now growing faster with a much better than average growth rate over all.   We had oil for so long that boosted our economy and gave us the booms and busts, now that is pretty much gone and we just sit here on the edge of the precipice waiting for things to either dip one or two % into decline, or hope that things will get better,,, but don't seem to have the will to do anything different (like what your getting, keep doing what your doing).  Our leadership seems to think spending almost a billion dollars on streets is the answer, all the while going about underfunding/ignoring/and pushing for just the opposite of, what so many people said they wanted with the new comprehensive plan.  We are dragging our heels agains making changes that so many other cities have already made, including those faster growing cities and metros.  

 It's so interesting to have watched the trends building over the last 10, 15, years or so as more and more the numbers show that more and more people are wanting to live in urban, pedestrian/transit friendly areas.  Yet we continue make that type of development difficult to illegal in the city.  Once upon a time we had a vision for highways and people driving out to their suburban style homes.  I can see those old 50's and 60s adverts and future imaginings in my mind.  I look at the old Convention center and the area around it and you can still see some of that "open space" vision and auto oriented architecture. And we zoned for that and we funded that vision... and for the most part we got what we zoned for and funded (and got some negative unexpected consequences as well).  But now more and more Americans are choosing to move towards another vision.  And it's not necessarily one that's either or, urban versus suburban, but one that is more balanced and fair.  But we here still cling to the old vision and keep it more difficult to create any of the new.  We also still work to fund the old vision and are not even beginning to "bend the curve" towards having more balance.  

We want to put all our eggs in ONE basket.  Auto oriented growth and sprawl.  I do not think that is wise.

Especially not when you look around and see so many indications that that is not a wise decision (more and more young people not even wanting to drive or own a car at all, the auto as "freedom" and expression, was a previous generations dream) (the trend in ever more and more other cities, of the core and pedestrian friendly areas growing faster than suburban type areas).  Back to downtown,,, downtown cannot be an island unto itself, we will need a comprehensive plan to have, to ALLOW more urban, pedestrian/transit friendly style growth in other parts of the city in order to create enough critical mass to make our city competitive and desirable for those people who want something different than auto oriented, suburban growth.  But our leadership seems dead set against it, rather than as we once were, a city in the forefront.  Whatever happened to that city that was full of big dreams and would go for it?  That would lead the way, no matter what difficulties surfaced, that would reinvent itself at the drop of a hat?  Not saying we need to go crazy lol, but my goodness we just seem to sit around waiting to slow down even further and rust away.  No, I take that back, we aren't simply waiting and doing nothing, we are trying to do just the opposite of moving forward.  Hindering urban growth, not changing the zoning laws and so only pushing for auto oriented development, and on top of that wanting to spend more money on that type of infrastructure.  Example: The mayor calls for building the Gilcrease expressway!  Even though we have, and paid for, studies that show that if we do build it and maintain our current growth pattern and zoning we will grow slower than if we don't and change?  I don't get it?  Why don't we have a mayor that is out there pushing for more urban infill and pedestrian/transit friendly growth?

[Oil Capital]

The metro is growing about 1% per year and has been for almost a decade. It's not fast growth but it isn't stagnant either.

"About" 1% is pretty close to stagnant, especially when the "about" means "almost".  PLUS, according to census estimates, that rate of growth has declined in the last 2 years.  Only 1.5% total growth in the 27 months from the 2010 census to the 2012 estimate... an annual growth rate of less than 2/3 of 1 percent   (.00667%)

[Weatherdemon]

Thanks all!

[DTowner]

What you are seeing in all of Tulsa is what the real estate "experts" call a flight to quality.  With the construction of new commercial buildings (office, retail & industrial) grinding to a halt in 2008 the supply of Class A space is limited.  The owners of Class B & C properties are facing the decision of remodeling their property to compete for high quality tenants or complete routine maintenance and be satisfied with second tier tenants.  Downtown has  a large amount of Class B & C space with much more C than B.  That is why the thought of First Place tower being mothballed was so scary to a lot of people.  It is the building most likely to be maintained as Class A that has vacancy.  You'll also see some of that vacancy decline as the empty office buildings are moved to residential. 

A recent Tulsa World article on downtown development stated there are 20+ (don't remember the  exact number) of empty downtown buidlings.  Obviously, those are almost all Class C (or less), but they drive up that vacancy number.  If you are currently looking for any sizable contiguous Class A or B space downtown, your options are very limited.

[SXSW]

"About" 1% is pretty close to stagnant, especially when the "about" means "almost".  PLUS, according to census estimates, that rate of growth has declined in the last 2 years.  Only 1.5% total growth in the 27 months from the 2010 census to the 2012 estimate... an annual growth rate of less than 2/3 of 1 percent   (.00667%)

I wonder how much of that low growth is attributed to American Airlines and to a lesser extent Dollar Thrifty?  What is the root cause of such slow growth?  It seems to me that Tulsa is on the upswing after what was a pretty rough decade for the city.  But it may take a couple more years before we start to see the higher growth we once had in the 90's, and the local industries need to be more primed for expansion (energy, aerospace, communications).  Imagine the growth we had then but a significant chunk of it infill within the city and especially downtown.  I think that will happen as that Class B & C space is turned into apartments downtown, which hopefully then drives the construction and/or renovation of more Class A office which is needed for job growth.

[TheArtist]

I wonder how much of that low growth is attributed to American Airlines and to a lesser extent Dollar Thrifty?  What is the root cause of such slow growth?  It seems to me that Tulsa is on the upswing after what was a pretty rough decade for the city.  But it may take a couple more years before we start to see the higher growth we once had in the 90's, and the local industries need to be more primed for expansion (energy, aerospace, communications).  Imagine the growth we had then but a significant chunk of it infill within the city and especially downtown.  I think that will happen as that Class B & C space is turned into apartments downtown, which hopefully then drives the construction and/or renovation of more Class A office which is needed for job growth.

The root cause is that we are not seen as a city where people and businesses prefer to locate. When we are still losing young, "creative class" people who are already here, let alone attracting them from elsewhere, that's not a good sign.

I have thought of posting the dozens of articles that have been out lately about more and more young people, not caring about having a car and not wanting to drive, more and more people of all ages, often of higher income, highly likely to start business types, wanting to live in pedestrian/transit friendly areas.... and we do not cater to either crowd.  So they leave and or don't come here. 

Other cities have taken decisive action to attract these types of people.... we have ignored them and actually make it illegal to create the types of lifestyle they enjoy.

Sure we have great suburban areas... but what other competitive cities in our class don't? 

Also, even the suburbanite enjoys visiting the vibrant city core on occasion, taking guests there, etc.  So if you don't have that to the level the other cities have, which city do you choose?

Just did a small mural job for an older couple in a new house in BA.  Very nice people who said they loved Tulsa, but they mentioned that they had two adult kids who left Tulsa and moved, one to Denver, the other to Austin.  Hear that kind of thing over and over. Look at the growth rates of those cities, even now, after the recession they are higher than Tulsa and likely to keep increasing their rate of growth.   

[SXSW]

Very nice people who said they loved Tulsa, but they mentioned that they had two adult kids who left Tulsa and moved, one to Denver, the other to Austin.  Hear that kind of thing over and over. Look at the growth rates of those cities, even now, after the recession they are higher than Tulsa and likely to keep increasing their rate of growth.   

Those are also larger cities with the Denver metro 3x larger than the Tulsa metro and the Austin metro nearly 2x more populous.  They are also fast growing because they have a wide variety of jobs available, especially for those in a younger demographic (both have large tech sectors, the largest outside of the SF Bay Area and Seattle).  They are also in our region and an obvious target for local college graduates looking to still be close to Oklahoma (along with Dallas/Ft Worth and Houston, two of the largest and fastest growing metros in the country). 

Tulsa needs to focus on being the best it can while understanding that it's still a mid-sized city.  There won't be tons of high-paying jobs but there can be a good number of them, especially in industries that are already present in Tulsa including energy, aerospace, communications, tech and manufacturing.  Education is a big part of that equation and we need to do a much better job in that area, especially higher education.  I've already beaten that dead horse many times on this forum. 

Look at our current "competition" as far as similar-sized metros.  How is Tulsa doing compared to these cities, especially in downtown revitalization and the creation of new jobs?

50. Salt Lake City, UT
51. Rochester, NY
52. Grand Rapids, MI
53. Tucson, AZ
54. Honolulu, HI
55. TULSA
56. Fresno, CA
57. Bridgeport/Stamford, CT
58. Worcester, MA
59. Albuquerque, NM
60. Omaha, NE

[carltonplace]

I also think Tulsa has a slight identity problem. In the past Tulsa was a southwestern city with a midwestern feel, but this seems to be fading away.

[SXSW]

I also think Tulsa has a slight identity problem. In the past Tulsa was a southwestern city with a midwestern feel, but this seems to be fading away.

I agree.  Tulsa doesn't have a "brand" which hurts in bringing in and retaining new businesses.  I've always said we should play up Green Country and our proximity to the Ozarks (hills, lakes, rivers, camping, hiking, rafting, boating, fishing, etc).  The surrounding natural beauty is something that sets us apart from other similar-sized cities in the South and Midwest.  We can't compete with the natural beauty of most western and coastal cities, but can best them in affordability and business climate.  That whole quality of life piece is absolutely critical, and why a place like Oklahoma City is growing twice as fast as Tulsa.  River projects (including the Gathering Place), downtown projects like Guthrie Green and new apartments/restaurants/bars, new infill in areas like the Pearl creating true urban neighborhoods, the expansion of the local public and private universities and even mundane things like the condition of roads and the public transit system, are all very important in this "new economy".