Marcus & Millichap

Oklahoma City Multifamily Market Report

Second Quarter 2018

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Economic Recovery and High Returns Foster Continued Investment

Job gains amid less construction enables vacancy decline. Economic recovery has taken root in Oklahoma City as the global rise in oil prices has boosted the metro’s dominant industry, petroleum. The metro is also receiving greater interest from companies looking to relocate or expand, including new distribution facilities from Amazon and FedEx. The recent recovery, exhibited by a three-year high in hiring this year, is well-timed with a reduction in the metro’s construction pipeline. During 2015 and 2016, a record 4,000 units were completed, while net employment expanded by only 100 positions. Limited job creation during that time period also impacted new household formation. The combination of these two trends contributed to a 230-basis-point increase in the apartment vacancy rate to 8.8 percent in 2017. Since the start of this year, the favorable combination of more jobs and fewer completions has led to the steady absorption of apartments and lowered vacancy. Renewed market demand has allowed rent growth to flourish. Effective rates, which were falling two years ago, are now appreciating by more than 3 percent for Class A and B properties.

Oklahoma City distinguishes itself with lower prices and higher yields than nearby markets. Cap rates in the state capital now average 8 percent. The regional metros of Dallas/Forth Worth, San Antonio and Houston all have yields in the high-6 to low-7 percent range. This advantage draws local, national and international investors. Most trades involve Class C buildings with fewer than 200 rentals that were completed prior to 1990. Many of these acquisitions were situated in the north-central part of the city, which is bordered by Highway 66 to the south, Highway 40 to the north and I-44 to the east. Properties in that zone traded at below-market-average prices and cap rates of low-7 percent. Several transactions were also made for Oakcliff-Parkview assets, which are near Tinker Air Force Base. Units here are priced even lower, with correspondingly higher yields in the low-8 percent zone. Some large-scale, Class A properties also changed hands in 2017. These properties are located directly downtown or closer to the University of Oklahoma in Norman and Moore. The trades had yields at or below 6 percent.

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