Oil-field service companies find tight market for industrial property

By: Sarah Terry-Cobo//The Journal Record//June 15, 2017

OKLAHOMA CITY – Oil-field service companies aren’t likely to find low-cost industrial property in the Oklahoma City area in the near term.

The market is tight for buildings with large storage yards, said several industry observers. Until real estate developers’ optimism matches the confidence of those in the oil industry, the low vacancy rate will continue, said J. David Chapman, associate finance and real estate professor at the University of Central Oklahoma.

Unlike in other states, there wasn’t an influx of available industrial buildings during the oil-field downturn, said Price Edwards industrial broker Danny Rivera. Chapman said that’s likely because operators continued to drill, though at a slower pace, in Oklahoma’s SCOOP and STACK during the downturn of the last couple of years.

Price Edwards industrial broker Bob Puckett said the industrial vacancy rate for the Oklahoma City area is about 7 percent. He said his company has seen a lot of activity from oil and gas contractors. As companies are leaving industrial buildings, there’s a high enough demand that new occupants are snapping up those properties quickly.

“With vacancy rates that low, with the different increments of sizes around 30,000 to 40,000 square feet, there will be a limited number of properties available,” Puckett said.

He recently leased vacant property to Oklahoma Upfitters LLC, a company that customizes vehicle fleets for drillers and service companies. The company is new, but the owners have done things related to automotive and trucking in the past.

Reel-O-Matic previously occupied the property, which consists of two buildings on 8 acres and has a large gravel yard at 6408 S. Eastern Ave. The buildings comprise nearly 41,000 square feet of space.

Puckett said there’s been a lot of bulk warehouse construction in the last two years, but the majority of new construction is owner-occupied. Newly built properties will be more expensive, but there are plenty of good options for image-conscious national tenants, he said.

Rivera said he’s seen similar trends. He recently sold a 20,800-square-foot industrial building and yard for $1.75 million to Patwell LLC, an oil-field service company. It wasn’t easy to convince the seller, Cougar Tool, to sell, he said. But the property was vacant and had about 4 acres of outside storage and two heavy cranes, which made it more attractive to his client.

It was also tough to convince Patwell representatives that the price was a good deal, because the property wasn’t listed for sale and they had to get Cougar’s attention. To build a comparable property would take at least one year and would cost about $100 per square foot to build.

Rivera said some clients from out of state are surprised when he’s unable to find available buildings with 10 to 20 acres of outdoor storage area for a low price.

“They get sticker shock because they think they can get properties for pennies on the dollar and they want 30,000 square feet,” he said. “Our problem now is that good-sized companies are looking, but that space doesn’t exist.”

Chapman said many oil-field service companies are hanging on to industrial properties as the industry begins to recover. But real estate developers aren’t optimistic that oil drilling will heat up again soon.

“They won’t build yet as an investment, so we’ll be short and horse trading what we’ve got,” he said. “That is probably OK; we need more proof the oil field will take off.”

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