Industrial real estate demands in flux
By: Sarah Terry-Cobo//The Journal Record//March 20, 2017
Resolution Pipe and Supply has leased a 7,200-square-foot building at 10609 NW Second St. in Yukon. (Photo by Brent Fuchs)
YUKON – A rebounding energy sector is putting pressure on the industrial real estate market, but what works for the oil field likely won’t work for the e-commerce industry.
Price Edwards & Co. industrial broker Bob Puckett said a steady stream of oil-field-related businesses are coming into the market, causing rents to rise and reducing the number of high-quality industrial properties available. The industrial vacancy rate is about 7 percent in the Oklahoma City metro.
A recent, five-year lease Puckett negotiated is one example of rising activity in the oil and gas industry. He leased 7,200 square feet at 10609 NW Second St. in Yukon to Resolution Pipe and Supply, a Texas-based service provider.
Valve maker FMC Technologies moved out as it consolidates its operations, Puckett said. The building was constructed in 2012 to fit FMC’s specifications.
It has been difficult to get tenants to sign long-term leases, five years or longer, Puckett said. If a landlord is building a new property for a tenant, the landlord typically wants at least a five-year or 10-year agreement.
“If you rely on the tenant’s credit to finance the construction, usually the lender will require a longer-term lease,” he said.
University of Central Oklahoma finance professor David Chapman said he understands why many in the oil-field service sector are reluctant to sign leases longer than three years. Volatile commodity prices can quickly disrupt that sector, he said.
There is about 3 million square feet of new industrial projects underway, in some phase from requesting a permit to signing leases. Much of that is being leased as it becomes available, Puckett said.
Chapman said there are new demands on industrial real estate that empty warehouses suited to the oil-field service industry can’t satisfy. There’s an increase in demand for distribution centers to ship consumer products bought online. Those in e-commerce want higher doors and ceilings to accommodate the need to sort products before the items are sent to the consumer, he said.
“Next-day (shipping) isn’t good enough today,” Chapman said.
Customers demand same-day delivery, and much of the existing warehouses don’t fit those needs, he said.
“New warehouses do have higher ceilings and door heights,” Chapman said. “But all the old oil-field stuff is a different creature and doesn’t work well for the distribution market.”