MARKET SNAPSHOT: Oklahoma City’s Stability Attracts New Investors to the Market

Oklahoma City—Oklahoma City has proven to be relatively recession-proof, notes Tim McKay, senior investment advisor in Hendricks & Partners’ Oklahoma City office, pointing to a Forbes ranking that named it as one of the top 10 cities in this category.

The metro’s unemployment rate was 5.5 percent as of September, according to the Bureau of Labor Statistics, compared to the nation’s 9 percent during the same period. Additionally, McKay tells MHN, the prospects for continued employment are positive.

“Because we have done a tremendous job in diversifying our employment base over the last 20 years—much different than the mid-’80s when Oklahoma suffered dramatically with the oil and gas industry—we have a significant number of additional employers when oil and gas takes its dips,” points out McKay. “We don’t felt the impact nearly as much as we did back in the ’80s.”

As far as the apartment market, vacancy in Oklahoma City is 7.5 percent through all vintages, with properties that are mid-1980s and newer seeing vacancy rates closer to 4 percent.

At the same time, overall rent growth is just above 3 percent, though McKay adds that owners of newer properties that are 96 percent and above in occupancy are anticipating closer to 5 percent-plus increases this next year.

At the same time, about 1,250 HUD-financed projects are expected to come online in 2012, with about 750 additional units slated for delivery.

Recent transactional activity is mostly in the newer (mid-’80s and newer) properties “that are stabilized in good locations,” reports McKay. Downtown Oklahoma City and the Edmond market are commanding much of this interest.

As far as pricing, a number of properties in the last 12 months have approached the market’s lowest cap rates, McKay tells MHN. “Part of that is driven by historically low interest rates,” he notes, “but another part of that is we do have several new investor groups coming into the market who are looking for stability and better cash-on-cash returns without the risk they perceive [to be in] … some of the markets that have been much more volatile than ours.”

Cap rates for the newer product is in the 7 percent range, with a handful of properties selling south of 7 percent.

As for the future, McKay notes, “the short-term and long-term forecast for job growth and unemployment rate is incredibly strong, so we are very, very bullish. It’s being evidenced by the number of investors and new investors that are coming into our market. The biggest risk that’s out there for value in our market is interest rates, but that’s not controlled locally.”

One potential challenge could be the older inventory in poor condition that traded at the height of the market, but McKay adds that this could also be seen as an “opportunity for people to come in and buy at a discount.”