Oklahoma City Office Market Leasing. Construction, Delivery, Net Absorption and Vacancy Rate. Oklahoma City Office Market Sales

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2 Executive Summary National Economy Local Economy Oklahoma City Office Market Leasing Net Absorption and Inventory Rental and Vacancy Rates OKC Office Market Information by Submarket Construction, Delivery, Net Absorption and Vacancy Rate Oklahoma City Office Market Sales OKC Market Significant Office Sale Transactions during Q About NAI Sullivan Group

3 EXECUTIVE SUMMARY The office market tracks 58,172,250 SF of office space. There was a net absorption of 385,967 SF of office space in Q2 with a vacancy rate holding steady at 8 percent, a.4% decrease from Q1. Overall lease rates were $16.10/SF with Class A rates at $21.03/SF, Class B rates at $16.68/SF annually and Class C rates were $13.03/SF at full service. All classes of office rates held mostly steady from the previous quarter. The steady performance of the office market shows it to be in balance with all classes of office properties showing positive absorption, with Class B showing the largest absorption of 259,135 SF. The Q2 office market saw 35 sales of office properties totaling $49,778,858 at an average price of $151.57/SF. The median price per square foot was $ The most notable sale was the Core Laboratory at 225 NE 97th Street in Oklahoma City for $15,400,00 at $219.11/SF. The outlook for the Oklahoma City office market remains very positive. Demand will continue to increase as lease rates for full service properties continue to climb as vacancy rates continue to fall along with limited construction of new properties. Bob Sullivan CEO Leasing Activities Total Inventory 58,172,250 SF Overall Rental Rate $16.10/SF/YR Total Vacancy Rate 8.00% Under Construction 1,916,891 SF Sales Activities Number of Transactions 35 Total Sales Volume $49,778,858 Average Price per Bldg. SF $

4 NATIONAL ECONOMY Britain s vote to leave the European Union sent waves of investors to United States stock market during the second quarter. Investors are pulling out of United Kingdom and European Union markets due to the uncertainty caused by Brexit and pouring their money into safer assets such as United States Treasury bills (U.S. T-bill). More investment in U.S. T-bills will lead to a lower yield, which will lower the mortgage rate tied to T-bill yield. Thus, creating more demand for housing. Brexit also drives up dollar value and will further weaken U.S. exports and adds volatility to the U.S. economy. In addition, uncertainty over the Japanese economy and a slowing economy in China make it unlikely that the Federal Reserve will raise interest rates this year. According to Kiplinger, the U.S. Gross Domestic Product (GDP) growth rate was 1.8 percent in the first two quarters of 2016, down from 2.4 percent in 2015, but is expected to rebound for the second half of the year and maintain growth somewhere between 2 and 2.5 percent. Despite the addition of 287,000 jobs in June, slower job growth in the months ahead is expected. The unemployment rate has reached 4.9 percent at the end of the second quarter, and is expected to stay below 5 percent for the rest of the year. LOCAL ECONOMY Oil prices have stayed consistently low for the last two years. Though we continue to see layoffs, and small oil and gas business close their doors, we saw some recovery in the oil and gas industry during the second quarter. The price of crude oil has increased almost 100 percent since February when it saw a 12-year low price of $26.05 per barrel. The number of drilling rigs has begun to increase; Continental Resources and Devon Energy are among the local oil companies who have increased their drilling budget and expected production levels. Oil prices have hovered between $45 and $50 per barrel during the second quarter and are expected to stay in this range for the foreseeable future. Though we are still feeling the pain of low oil and gas prices, there are still many exciting developments going on in the Oklahoma City market: Chisholm Creek continues its expansion with the construction of more shops and houses; the Ferris wheel has been set up in the Wheeler District and is expected to energize Oklahoma City s south side economy; the demolition application process is underway to make room for the new convention center; developers continue to seek opportunities to build hotels in the downtown area and construction is well underway at Bank of Oklahoma (BOK) Park Plaza. OKLAHOMA CITY OFFICE MARKET LEASING The largest office lease signings of 2016 occurred including the 61,730 SF lease signed by the University of Oklahoma at 865 Research Pkwy-building 7 in the Univeristy Research Park, a 25,000 SF deal signed by Intermedix at 7725 W Reno Ave in the OKCWorks Campus and a 24,150 SF lease signed by Human Services Child Support at 7430 SE 15th St. in the Oklahoma Journal Professional Building. 4

5 NET ABSORPTION AND INVENTORY The total office net absorption was a positive 385,967 SF. The total net absorption increased from 203,822 SF at the end of Q The total office inventory was 58,172,250 SF. The total office inventory increased from its inventory of 57,870,375 SF at the end of Q Class-A property net absorption yielded a positive 80,617 SF, which increased from the net absorption of a negative 44,332 SF at the end of Q Class-B property net absorption yielded a positive 259,135 SF, which slightly increased from the net absorption of 251,925 SF at the end of Q Class-C property net absorption yielded a positive 46,215 SF, which increased from the net absorption of a negative 3,771 SF at the end of Q

6 RENTAL AND VACANCY RATES The overall office market gross rental rate averaged $16.10/SF/YR. The overall office market rental rate increased from the $15.67/SF/YR rate at the end of Q The overall office market vacancy rate was 8.00%. The overall office market vacancy rate decreased from 8.40% at the end of Q Class-A property gross rental rate averaged $21.03/SF/YR. Class-A property gross rental rate increased from the $20.58/SF/YR rate at the end of Q Class-A property vacancy rate was 6.40%. Class-A property vacancy rate decreased from the 7.40% rate at the end of Q Class-B property gross rental rate averaged $16.68/SF/YR. Class-B property gross rental rate increased from the $16.31 rate at the end of Q Class-B property vacancy rate was 7.60%. Class-B property vacancy rate decreased from the 7.90% rate at the end of Q

7 Class-C property gross rental rate averaged $13.03/SF/YR. Class-C property gross rental rate increased from the $12.98/SF/YR rate at the end of Q Class-C property vacancy rate was 9.50%. Class-C property vacancy rate decreased from the 9.70% rate at the end of Q OKC OFFICE MARKET INFORMATION BY SUBMARKET CBD Northwest Edmond Norman & Moore Rental Rate $15.45 $16.76 $16.76 $16.38 Vacancy Rate 17.30% 7.00% 6.00% 7.30% Existing Buildings Existing SF 11,273,718 SF 13,471,135 SF 3,455,557 SF 4,278,181 SF Cap rate 9.30% 9.10% 7.60% 6.70% CONSTRUCTION, DELIVERY, NET ABSORPTION AND VACANCY RATE Under Construction Building Name Building Address City RBA Delivery Time BOK Park Plaza 499 W Sheridan OKC 692,716 SF Apr 2018 Boeing 6811 S Air Depot Blvd OKC 316,062 SF Sep W Rock Creek Rd Norman 250,000 SF Dec 2016 Gulfport Energy HQ 3001 Quail Springs Pky OKC 141,512 SF Oct 2016 GE Oil & Gas Technology Center 300 NE 10th OKC 95,000 SF Aug 2016 Bldg III 715 NE 122nd St OKC 65,000 SF Nov 2016 Oklahoma City Municipal Courts Building 701 Couch Dr OKC 65,000 SF Feb 2017 Memorial Springs Office Park N Western Ave OKC 60,000 SF Jan

8 Under Construction - Cont d Building Name Building Address City RBA Delivery Time Delaware Resource Group HQ 3220 Quail Springs Pky OKC 35,575 SF Sep 2016 Hearts For Hearing N Portland Ave OKC 28,420 SF Oct 2016 University North Park Professional Center th Ave NW Norman 25,686 SF Sep 2016 There was 1,916,891 SF of office space under construction at the end of the second quarter with an average gross asking rental rate of $23.23/SF/YR. The two projects with the most building area were the 692,716 SF BOK Park Plaza at 499 W. Sheridan Ave., which is scheduled to be delivered in April 2018 and the 316,062 SF Boeing building at 6811 S. Air Depot Blvd., which is scheduled to be delivered in September We are seeing full service gross rates for properties under construction as high as $26/ SF/YR, the example being a Class-A office building which is scheduled to be delivered in November 2016 located at 715 NE 122nd St. in OKC. Some notable deliveries during the first half of 2016 included the 200,000 SF Westgate One office building at W Reno Ave. in OKC, completed in March, the 11,072 SF office building at 8308 N May Ave. in OKC, also completed in March and the 12,000 SF office building at Parkway Commons Dr. in OKC, completed in June Offices built in 2016 have an average asking rental rate of $18.62/SF/YR and the asking rental rate is as high as $25/SF/YR for a full service lease at the 11,072 SF Classs-B office building delivered in March 2016 at 8308 N. May Ave. in OKC. 8

9 OKLAHOMA CITY OFFICE MARKET SALES There were 35 transactiions totaling $49,778,858 recorded in the second quarter of The largest individual office property sale was the sale of the 70,284 Summary Number of Transactions 35 SF Class-A Core Laboratory office building at 225 NE Total Sales Volume $49,778,858 97th St. in Oklahoma City. Sh Oilfield Equipment Co Total Bldg. SF 341,157 SF Inc. purchased this property from Britton & Broadway LLC for $15,400,000, or $219.11/SF on May 13, Total Land in Acres Average Price per Bldg. SF $ Vacancy rates in the Oklahoma CIty office market decreased even though we continue to see layoffs by energy companies large and small. With oil prices Median Price per SF $ projected to stay between $45 and $50 a barrel, the vacancy rate is also expected to stay about the same. Even through the downturn of oil and gas, we still see many exciting office projects going on in the Oklahoma City market. Boeing s office is well under construction, which will bring 800 to 900 new jobs to Oklahoma City. BOK Park Plaza is expected to finish its construction in April 2018, which has its 692,716 SF space - all of which is pre-leased.. 9

10 OKC MARKET SIGNIFICANT OFFICE SALE TRANSACTIONS DURING Q Property Name: Core Laboratory Address: 225 NE 97th Street, OKC Sale Price: $15,400,000 Building SF: 70,284 SF Sale Price per SF: $ Sale Date: 05/13/2016 Property Name: Mid America Business Park- Building V Address: 7919 Mid America Blvd., OKC Sale Price: $11,450,000 Building SF: 84,504 SF Sale Price per SF: $135.5 Sale Date: 04/02/2016 Property Name: Muifield Village Office Park Address: N May Ave, Edmond Sale Price: $3,200,000 Building SF: 16,000 SF Sale Price per SF: $200 Sale Date: 04/19/

11 Property Name: Markham Motor Company Address: 512 N Broadway Ave., OKC Sale Price: $2,200,000 Building SF: 19,500 SF Sale Price per SF: $ Sale Date: 04/06/2016 Property Name: Austin Business Park Address: 825 W Covell Rd., Edmond Sale Price: $1,222,000 Building SF: 6,750 SF Price per SF: $ Sale Date: 04/28/2016 Property Name: Charter Commons Office Park Address: 318 NW 13th St., OKC Sale Price: $1,150,000 Building SF: 6,496 SF Price per SF: $ Sale Date: 06/21/

12 NAI SULLIVAN GROUP NAI Sullivan Group is a leading global service provider offering a full range of premier services, customized to fit your need and exceed your expectations. Our talented and experienced professionals provide benefits to large institutions and small business owners alike. We are your single point of contact for customized real estate services. NAI Sullivan Group strives for excellence in all facets of real estate services in order to maintain our position as an industry leader. Our team transforms forward-thinking ideas into cutting-edge applications, to achieve maximum results for our clients, company and community. Whether around the corner or around the world, NAI Sullivan Group is a dynamic member of NAI Global, the world s leading managed network of commercial real estate firms. With over 6,700 professionals, more than 375 offices and over 380 million square feet of properties managed, we bring together people and resources to deliver results for our clients wherever needed. Our clients come to us for our extensive knowledge. They build their businesses on the power of our global managed network. NAI Sullivan Group provides a complete inventory of office, industrial and retail properties, including those that are fully occupied. It contains thousands of details on every facet of every building tracked. Also, NAI Sullivan Group provides detailed information on all contacts and companies in various markets. NAI Sullivan Group is a leader in the adoption of new technologies to improve business operations as a means of speeding communications, optimizing performance, delivering the highest quality services to clients and facilitating the sharing of best practices among our brokers. NAI Sullivan Group has launched a new application for the ipad and iphone. This app is free of charge and is available for download in the Apple App Store under NAI Sullivan Group. Clients can use the app to review all our company listings, find agent contact information, perform calculations, review our current market reports and much more. This app allows a client to simply take a photo of the property they are interested in and their request will instantly be submitted to the sales associate of the client s choice. The associate will then contact the client with details of the property in question. CoStar Group is the primary provider for commercial real estate information, analytics and marketing services. CoStar conducts extensive local market research to produce and maintain the largest and most comprehensive database of Commercial Real Estate information. Their online services enable the sales associate to analyze, interpret and gain unmatched insight on commercial property values, market conditions and current availability. REALTrac Online is NAI Global s web-based transaction management software, which helps to coordinate projects and facilitate the transaction cycle. REALTrac enables the Buyer, the Seller, the Lessee and the Lessor to view online the progress of their transaction. STARS is an acronym which stands for Strategic Transaction Administration and Reporting System. STARS is NAI s proprietary system for providing a timeline of events to clients in transactions. LoopNet Inc. is one of the leading information service providers to the commercial real estate industry; it delivers a comprehensive suite of products and services to meet the national and local needs of commercial real estate firms, organizations and professionals. LoopNet members can list, search, market, research and finance commercial real estate properties over the Internet. For more information, please visit our website: Download the NAI Sullivan Mobile App FREE from the App Store! Resources mainly come from CoStar, The Oklahoman, and The POINT. 12

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