Growth in Energy Sector Fills
Office Vacancies in Oklahoma City

More Oklahoma office building landlords are smiling these days even as commercial property owners in many other U.S. markets are jittery over the possibility of a recession.

What a difference $100-a-barrel oil makes.

Oklahoma City's booming energy sector is driving down vacancies and pushing up rents, just like it is in that bigger energy capital of Houston. Rents also are rising in retail, warehouses and other sectors of the economy of the metropolitan area, which is home to about 1.2 million people. There is even the possibility of Oklahoma City landing a professional basketball team.

In one major expansion by an energy business, SandRidge Energy Inc. is moving its headquarters into much of the space in a 500,000-square-foot tower in downtown Oklahoma City that was formerly the headquarters of the Kerr-McGee Corp. SandRidge, an oil and natural gas company, purchased the tower and some other property for $25 million and is currently renovating the tower. The company already occupies some space in the building and will move more people from about 75,000 square feet of leased space in another area of the city by the end of the year, says Dirk M. Van Doren, the company's chief financial officer. Its Oklahoma City staff has swelled from about three people in mid-2006 to about 350 today.

Other energy companies are making similar moves. Quest Resource Corp., an oil and natural gas exploration and production company, late last year relocated its headquarters to about 36,000 square feet in the Oklahoma Tower downtown from about 10,000 square feet in the northwest section of the city.

Growth in the energy sector has helped push Oklahoma City region's office vacancies down in recent years to 16.3% in the third quarter from mid 2004 when about one-fifth of the region's office space was empty, according to Property & Portfolio Research Inc., a Boston-based research firm. Even Oklahoma City's central business district, which struggles with vacancies in older buildings, has seen office vacancies drop to 28.6% from more than 30% in 2004.

Jobs in the area's natural resources and mining sector, which includes oil and natural-gas-related industries, rose about 55% to 14,700 in November from 9,500 the same month in 2004, according to the Bureau of Labor Statistics. The annual rate of the growth of the area's energy sector is expected to slip somewhat in 2007 to 9% from about 22% in 2006, according to Mark Snead, director of the Center for Applied Economic Research at Oklahoma State University.

Nearly all sectors of the area's real estate market have benefited from the energy upswing. But most property classes are priced low compared with the rest of the country. While the median single-family home prices in the U.S. declined 2% in the third quarter from the year-earlier period to $220,800, median prices in the Oklahoma City area rose 2.4% to $130,000, according to the National Association of Realtors. The area's office, retail, warehouse and apartment rents are all rising although they remain well below the average of the 54 major markets surveyed by PPR.

Mayor Mick Cornett is also hoping downtown will get a boost if Oklahoma City is successful in attracting an NBA-team to play permanently in its Ford Center. The arena, built in 2002, temporarily hosted the New Orleans Hornets after Hurricane Katrina.

Last week, the city council voted to ask the public to vote in March on whether to raise as much as $121.6 million through a one-cent sales tax to pay for improvements to the Ford Center. Despite some recent success at downtown revitalization, the city still is associated by many with the 1995 bombing of the Alfred P. Murrah building. "We need to be branded with something positive," Mr. Cornett says.

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