RMA 2023 luncheon

By: J. David Chapman/March 30, 2023

I was honored to speak at the Risk Management Association’s “Know Your City” luncheon recently. This organization is focused on advancing the use of sound risk principles in the financial services industry. My colleague and co-presenter, Darin Dalbom, provided the group with valuable valuation guidance. I hope we were able to provide some clarity in evaluating the risk parameters in our metropolitan market.

This year seemed a bit different. We track key indicators, or variables, in the real estate industry. When trying to forecast the future, it seems like we have more variables than ever this year. While still tracking the impact of the pandemic, we have now added rising inflation, rising interest rates to fight the inflation, a slowing economy in response to the inflation and rising interest rates, supply chain disruptions, labor shortage pressures, geopolitical risks with Russia and China, and finally financial (banks) uncertainty. Whew, it took the full hour presentation to consider all the changes in the world and their effect on real estate.

The retail sector is up approximately 2% with 91.7% occupancy in the metro area and the suburbs showing the most strength. The winners are the convenient stores – expect to see a proliferation of new concepts and locations in the coming year. The loser will be marijuana dispensaries with closings causing disruption in small retail space occupancies.

Multifamily also will continue to perform well, with the need for housing continuing to be strong. Mortgage spikes have postponed those contemplating a housing purchase and relegating them to renting for the time being. Rent increases will normalize in the 2% to 3% range from the 12% we have seen in the previous years. Those unhappy with their current home are not likely to trade their home with a current 3.2% interest rate for the new home with a 6.7% interest rate. This will slow housing starts and the sale of existing homes.

E-commerce growth, supply chain transformation and location optimization will continue to drive demand for industrial space in 2023. Expect slowed but continued growth in this sector.

Nearly one-third of all office space for lease in OKC was dark at the end of 2022. The demand may never return, even in the wake of continued positive employment growth, and owners will start to consider adaptive uses as we have seen at the First National Center and Park Harvey buildings.

J. David Chapman is a professor of finance and real estate at the University of Central Oklahoma (jchapman7@uco.edu).