OklahomaOklahoma CityCity Office Market Summary Year End 2005 OklahomaOklahoma CityCity Office Market Summary Contents During 2005 the Oklahoma City office market continued to stabilize and actually showed marked improvement in key suburban submarkets. Office Market Summary ............ 2-3 Overall, the market’s vacancy rate dropped from 19.9% to 18.0%. Office Submarket Map ................ 3 The suburban markets fared well in almost every submarket and building Central Business District ............ 4-5 classification. The overall suburban vacancy rate fell from 12.9% to 11.7%. Northwest ................................ 6-9 Class A suburban space is a particularly healthy market with a vacancy North .................................. 10-12 rate of only 8.2%. Just 3 years ago, the Class A suburban vacancy rate Midtown ................................... 13 stood at 34.6%. As it stands, there are virtually no large blocks of available West ................................... 14-15 Class A space in the suburban submarkets and very few large blocks of Class B availabilities. With options that limited, it is only natural that Suburban Analysis .................... 15 the suburban markets begin to experience the construction of additional inventory and that is certainly the case. The general health of the suburban market has given rise to the construction of two new Class A buildings that are either under construction or soon will be in the Gaillardia commercial development. The addition of these new buildings will only add approximately 90,000 square feet of new inventory however, and the market should be easily able to absorb the additional space with no adverse effect. The continued improvement in the suburban markets is also reflected in rental rates. At the end of 2005 the average asking rate for suburban space had risen to $14.30 per square foot, with Class A rates averaging a robust $18.80 per square foot. Just as a high tide raises all ships, the Class A rate increase is pulling Class B and C rates up as well. Class B rates increased from $13.61 to $13.79 per square foot and Class C rates rose from $11.13 to $11.24 per square foot. Suburban Class B vacancy rates could especially tighten in the next few years for several reasons. The first being the limited amount of Class A options and the second being that available Class B The information contained herein has been obtained inventory may shrink due to some recent Chesapeake Energy acquisitions. from reasonably reliable sources. Price Edwards & While it is not known for certain what Chesapeake’s immediate plans are Company makes no guarantee, either express or implied, as to the accuracy of such information. All for several Class B buildings they have recently purchased, the potential data contained herein is subject to errors, omissions and changes. Reproduction in whole or in part, without exists that this inventory could eventually be removed from the market prior written consent is prohibited. depending upon what Chesapeake’s own office requirements are. 2 Oklahoma City Office Submarket Map Oklahoma City Office Vacancy 35% 30% 25% 20% Kilpatrick Turnpike urnpike Turner T 44 Lake Hefner Parkway 15% 3 10% Northwest Expressway 77 35 5% urnpike 0% North 96 97 98 99 00 01 02 03 04 05 Submarket Market Vacancy CBD Vacancy Suburban Vacancy Kilpatrick T Northwest 40 Submarket 235 State Capital Complex 44 Midtown CBD 40 Interstate 40 West Submarket Interstate 40 Oklahoma City Office Inventory 35 20 Interstate 240 240 15 10 (Millions) Interstate 44 Squre Feet 5 0 96 97 98 99 00 01 02 03 04 05 Sq.Ft. Occupied Sq.Ft. Vacant Although the Central Business District’s vacancy decreased from 31.7% to 29.1%, that improvement is actually quite misleading. The decrease in the vacancy rate was a function of two older buildings being dropped from the available inventory by their conversion to a hotel and an apartment building. Interestingly, Office Market Vacancy the CBD actually had less occupied space at the end of 2005 than 25% it did at the end of 2004, but the deletion of those two mostly 20% vacant buildings managed to positively impact the vacancy rate. It 15% should also be noted that similar to past years, more than 57% of the CBD’s available space lies within its older, less functional, Class 10% C buildings. The Class A vacancy rate is actually only 18.3% and 5% the Class B vacancy rate is 16.1%. The outlook for 2006 should be 0% 2001 2002 2003 2004 2005 more of the same. The better buildings will continue to perform well and the lesser buildings will continue to flounder. 2006 should prove to be another positive year for the local office market. The national economy is experiencing a steady recovery and leasing activity is brisk. The local economy, which is still Total Market Absorption influenced by the petroleum industry is even more robust with an expected growth rate of 1.9% in 2006. Existing tenants are 2001 expanding much more than contracting and more new companies 2002 are opening offices in Oklahoma City. And, as noted earlier, for 2003 the first time in three years new construction will add inventory to 2004 the market. 2005 -300000 -200000 -100000 0 100000 200000 Square Feet 3 OklahomaOklahoma CityCity Central Business District CBD Vacancy 35% 30% 25% 20% 15% 10% 5% 0% 2001 2002 2003 2004 2005 CBD Rental Rates $13 2005 OKLAHOMA CITY CENTRAL BUSINESS DISTRICT REVIEW $12 • Aggregate vacancy rates decreased from 31.7% to 29.1%. $11 • Class A vacancy increased from 16.9% to 18.4%. • Class B vacancy decreased from 20.2% to 16.1%. $10 2001 2002 2003 2004 2005 • Class C vacancy increased from 60.7% to 61.1%. • Aggregate rental rates increased from $12.77 to $13.23 per SF. • Class A rates remained flat at $15.93 per SF. • Class B rates increased from $12.06 per SF to $12.62 per SF. CBD Occupancy • Class C rates increased from $10.44 per SF to $10.84 per SF. 100% • The Oklahoma City Central Business District had negative absorption of 57,000 80% square feet during 2005. 60% 40% 20% 2006 OKLAHOMA CITY CENTRAL BUSINESS DISTRICT FORECAST 0% • Vacancy rates should remain near current levels throughout 2006. Class A Class B Class C • Rental rates will also remain near current levels. CBD Absorption 2001 2002 2003 2004 2005 -200000 -100000 0 100000 200000 Square Feet 4 Central Business District RENTABLE sQ. FT. PERCENT COMMON BUILDING YEAR BUILT FLOORs sQ. FT. VACANT VACANT RATE AREA FACTOR 100 PARK AVENUE BUILDING 1923/1964 12 99,752 7,882 8% $10.50 12% 100 Park Ave. 101 PARK AVENUE BUILDING 1936/1974 14 189,090 112,013 59% $13.00 15% 101 Park Ave. 20 N. BROADWAY 1981 19 307,388 0 0% $14.00 20% 20 N. Broadway BANCFIRST BUILDING 1921/1970 11 105,840 0 0% $12.50 12% 101 N. Broadway BANK OF OKLAHOMA PLAZA 1972 16 233,808 26,538 11% $14.50 20% 201 Robert S. Kerr CHASE TOWER 1971 36 514,642 0 0% $12.50 15% 100 N. Broadway CITY PLACE 1931/1985 33 292,304 66,671 23% $11.00 14% 204 N. Robinson CORPORATE TOWER 1980 14 277,849 87,987 32% $15.00 17.5% 101 N. Robinson COURT PLAZA 1923/1979 10 78,381 22,811 29% $10.00 14% 228 Robert S. Kerr DOWELL CENTER 1926 20 190,000 175,000 92% $9.50 15% 134 Robert S. Kerr FIRST NATIONAL CENTER 1931`/1974 28 975,025 650,788 67% $11.00 16.5% 120 N. Robinson HIGHTOWER BUILDING 1929 10 107,152 12,901 12% $13.00 15% 105 N. Hudson LEADERSHIP SQUARE 1984 21N/16S 735,514 123,667 18% $16.00 20% 211 N. Robinson 11777 (S) OKLAHOMA TOWER 1982 31 568,960 166,048 30% $16.00 20% 210 Park Ave. 5254 (S) ONE NORTH HUDSON 1931/1981 11 73,000 8,500 12% $10.00 12% 401 W. Sheridan ROBINSON PLAZA 1992 10 183,000 0 0% $11.00 0% 50 N. Robinson ROBINSON RENAISSANCE 1927/1987 12 174,840 31,304 18% $12.00 25% 119 N. Robinson SONIC BUILDING 2003 4 100,654 7,530 7% $21.00 8.57% 300 Johnny Bench Drive SUBMARKET TOTAL 5,207,199 1,516,671 29.1% $13.23 5 OklahomaOklahoma CityCity Northwest Submarket Northwest Vacancy 20% 15% 10% 5% 0% 2001 2002 2003 2004 2005 Northwest Rental Rates $15.00 2005 NORTHWEST OKLAHOMA CITY SUBMARKET REVIEW $14.00 • Aggregate vacancy rates decreased from 13.9% to 11.3%. • Class A vacancy decreased from 7.3% to 6.5%. • Class B vacancy decreased from 13.7% to 12.2%. $13.00 2001 2002 2003 2004 2005 • Class C vacancy decreased from 22.1% to 14.5%. • Aggregate rental rates increased from $14.50 per SF to $14.75 per SF. • Class A rental rates increased from $18.76 per SF to $18.82 per SF. • Class B rental rates increased from $13.87 per SF to $14.04 per SF. Northwest Occupancy • Class C rental rates increased from $11.34 to $11.43 per SF. 100% • The Northwest Oklahoma City Submarket experienced an absorption of 60,000 80% SF during 2005. 60% 40% 2006 NORTHWEST OKLAHOMA CITY SUBMARKET FORECAST 20% • Vacancy rates should remain flat as this submarket remains strong but also deals 0% Class A Class B Class C with the addition of approximately 50,000 SF of new construction. • Quoted rates will rise due to a small amount of available Class A Space. Northwest Absorption 2001 2002 2003 2004 2005 -250000 -150000 -50000 50000 150000 250000 Square Feet 6 Northwest Submarket RENTABLE sQ.