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OklahomaOklahoma CityCity Retail Market Summary Mid-Year 2007 OklahomaOklahoma CityCity Retail Market Summary Mid-Year 2007 CONTENTS Welcome to the Mid-Year 2007 Retail Market Survey prepared by Price Edwards & Company. Retail Market Summary 2-3 This survey evaluates the occupancy of 217 retail centers (in excess of 25,000 s.f.) containing approximately 26.5 million square feet. In addition, we will be looking at the overall market including Retail Submarket Map 3 freestanding properties which are not part of a shopping center. We have surveyed 233 buildings containing in excess of 12 million square feet. With these two types of properties combined, we North 4-5 have about 38 million square feet of space available for retail use (excluding strip centers with less than 25,000 s.f.). During the past six months since our last retail market survey, our overall shopping Northwest 6-7 center occupancy has declined slightly. Our vacancy rate is 10.73% which is about one percent higher than it was at the time of the last survey. We have added ten centers to our survey with over South 8-9 one million s.f. of new space. They are all new centers that have been under construction for the past several years. Vacant space in shopping centers remains at about 2.84 million s.f. In addition, Edmond 10-11 there is another 379,000 s.f. of free standing space that is available for occupancy. There continue to be numerous strip centers that are smaller than 25,000 s.f. being built all over the metropolitan area. West-Central 12-13 These strip centers are increasing significantly as more and more developers are building spaces for small retailers. We would estimate that there are easily 2.5 million square feet of these properties Moore-Norman 14-15 in the market which are not being surveyed. Many of these have some vacancy, and they must be considered when evaluating our retail market. We do still consider our overall retail market to be Eastern OK County 16-17 healthy. Market Sales Summary 18 New construction continues to be one of the major issues that is affecting the retail market. As we stated at the time of our last survey, we have numerous centers under development or in the planning stages. There are over 2.25 million square feet of space under construction at this time, and there is probably another million square feet of space that has been announced but on which construction has not begun. While it is impossible to predict how much of this announced space will actually be built, there is no doubt that we will be adding a number of new centers over the next several years. We know that 10 to 15 new centers with up to three million square feet will be opening. We also believe that there are at least another million square feet of future phases of operating centers. A significant number of the centers that are under construction are large developments with significant pre-leasing to national or regional tenants. In addition, there are a number of small strip centers being developed. While it is unclear how much of these strip centers are pre-leased, there is a sense that many of them are spec, and their success could be affected by the large amount of new competition. We continue to be concerned about this new construction taking tenants from a number of our older centers and causing increased vacancy. The new construction has stemmed in part from a number of new tenants and prototypes entering The information contained herein has been obtained from reasonably reliable sources. the market. Not only are several mall anchors moving to open-air stores, we are also attracting Price Edwards & Company makes no guarantee, some tenants that heretofore have not been part of our market. The sizable new centers have a either express or implied, as to the accuracy of power center component, and most will have a lifestyle component as well. In addition, these new such information. All data contained herein developments generally have significant excess land for future phases which offer the opportunity for is subject to errors, omissions and changes. Reproduction in whole or in part, without the successful centers to become major shopping locations in the future. prior written consent is prohibited. We are seeing multiple tiers of lease rates. In the new centers that are dominated by national credit tenants, rental rates between $18 and $35 per s.f. are the norm. In the centers that are primarily 2 considered neighborhood and older community centers, where most of the local tenants are located, rental rates are significantly lower—generally between and $7 and $15 per s.f. Likewise, the national tenants are receiving higher tenant finish allowances than the local tenants with some of the new centers providing $25 to $50 per s.f. allowances compared to the local tenants’ allowances of $5 to $10 per s.f. above white box finish levels. However, in some of the older centers, many tenant prospects desire different space configurations than have been utilized in the past, and as a result, large retrofit costs are becoming more and more prevalent. As capital has continued to be allocated to the real estate market, a number of retail property properties are on the market or have been sold during the past 18 months. After having documented 24 sales totaling over $150 million in 2006, we have had five sales during the first six months of 2007. The 2007 sales total almost $40 million and averaged over $79 per s.f. The North Oklahoma City market, the West Central Oklahoma City market, the Edmond market, and the Moore/Norman market all have occupancy rates in excess of 90% and continue to be doing quite well overall. The East Oklahoma County submarket and the South submarket each have a vacancy in excess of 15%. Downtown continues to be a major focus of our city’s leaders. The goal is to develop more housing and hotels in order to create demand for significant retail development to go with the entertainment venues that are in place at this time. Seven hotels with over 1,200 new rooms have been completed or will be completed within the next year. Several significant housing projects are underway. They include rental units and homes for purchase with price ranges between $150,000 and $750,000. More than 1,000 residential units should be completed within the next couple of years. At the present time, we are showing one free-standing retail building, Bass Pro, and one multi-use center in our survey. The multi-use center includes the Harkins Theater, two strip centers in front of it, and a mixed use building along the canal just west and north of these facilities. There are numerous restaurants and clubs located throughout Bricktown, but all are located in buildings that cannot be classified as retail facilities. The City has publicly advertised the need for a downtown grocer of some type and significant efforts are being made to attract a specialty grocery store. There is also planning underway for a potential retail development area in the Core to Shore plans which addresses a potential expansion of downtown to the south as I-40 is moved south towards the Oklahoma River. More discussion on these developments in the future, but there is very little effect on the present retail market. The survey has been divided into seven submarkets and five classes within each submarket. Even though these submarkets are generally healthy, there are pockets of vacancy caused by loss of an anchor than can skew the actual results in a small area of a submarket. Detailed study of all the markets is suggested before a firm decision about investing in a specific submarket is made. Price Edwards & Company is pleased to provide you with this survey. Hopefully, it will help you better understand the Oklahoma City and the metropolitan area’s retail markets. Please do not hesitate to contact us if we can be of service. Total Market Inventory Total Market Vacancy Total Market Absorption 1998 - 2007 1998 - 2007 1999 - 2007 40 15% 1999 35 2000 12% 30 2001 25 2002 9% 20 2003 15 6% 2004 10 2005 Millions of Square Feet 3% 2006 5 2007 0 0% 98 99 00 01 02 03 04 05 06 07 98 99 00 01 02 03 04 05 06 07 -1.0 -0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0 Includes additional freestanding retail space Millions of Square Feet There are five classes of shopping centers being evaluated. “A” centers are super regional centers containing in excess of 900,000 square feet. “B” centers are regional centers containing from 300,000 to 900,000 square feet. Class “C” centers are those community shopping centers with 100,000 to 300,000 square feet. Class “D” centers contain 30,000 to 100,000 square feet and are classified as neighborhood strip centers. “E” centers are strip centers with 25,000 square feet to 30,000 square feet. You will be able to see how each of the classes of centers in each sector are performing. 3 Oklahoma City North Submarket Summary Oklahoma City There are two major centers of retail in this sector—the Penn Square area at the confluence of North Pennsylvania and Northwest Highway and the Quail Springs area located along the Kilpatrick Turnpike between Pennsylvania and May. These two areas are anchored by strong regional malls.