Oklahoma City Apartment Market Trends

2016 Year-End Apartment Survey Summary

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2016 was an interesting year, full of many changes, as well as many changes which were expected but didn’t happen. For example, the Fed didn’t raise interest rates as much as expected; Brexit didn’t act as an anchor on the US or world economy, and Donald Trump shocked the world with an unexpected victory to become the 45th President of the United States. In looking at our previous forecast, one thing that did happen as predicted was a slowdown in a seven year run of multifamily investment volume. In 2016, transaction activity pulled back to just over $300 million, which is 30% below the previous year, yet still near the top of this extended expansion cycle. While this volume is still strong compared to other sectors in the commercial real estate industry, it still warrants a deeper look as to the cause of such a significant decline year over year. The market has slowed down precipitously largely due to the lack of inventory combined with buyer/seller expectations. CAP rates have compressed so far that investors are no longer able to achieve the desired returns they once expected and are virtually being priced out of the market. On the operations side, Oklahoma City experienced another strong year of rental growth on a macro level; however, on a micro level select sub-markets and property classes lagged the rest of the market. New deliveries in the luxury category has caused some fierce competition, creating concession battles between similar and competing properties. 

Although the transaction volume was down year over year, historically it’s right where it should be. A healthy economy, stable property values and improving operations make Oklahoma City a safe multifamily investment market. The MSA has consistently ranked at the top for job creation, and with recent expansions and relocations it continues to drive economic growth into 2017. The previous historically high volume years can be attributed to the perfect storm, therefore there is no real concern to the decline seen over just a single year. In the early 2000’s interest rates dropped to historically low levels, and instead of turning back up they continued to fall year after year. This “cheap” money combined with high oil prices, peaking at $150 in 2008 before hitting a steep downward slope in 2014, caused apartment developers to do what they do best, build. While apartment developers stepped up and filled the construction pipeline with numerous projects to meet the needs of the growing workforce, the oil market began to change and volatility in oil prices stifled absorption causing downward pressure on rents in newer inventory. When oil bottomed out just below $30 per barrel in early 2016, developers were too far along on many projects to simply halt construction. Furthermore, the national economy continued to improve and for the first-time Oklahoma was more diversified than it had ever been, giving developers the confidence that oil prices alone couldn’t keep them from hitting projections. Regardless of how much optimism the development community has, when job growth slows or even halts and construction continues, occupancies cannot keep up with deliveries and concessions must be given. From the beginning of the boom until May 2014 concession on new construction were virtually non-existent. As more inventory flooded the market concessions continued to rise. Starting as low as 0.2% (roughly $6.70 per month in rental value) in mid-2014, to a current concession value of $97.90 per month, or 7.8% of the rental value on new construction. Market wide concessions remain lower at $11 per month, or 2.09% of their rental value.  

This perfect storm created a bullish market on Class A & B apartments, and trickled downhill all the way to Class C and D communities. Although the new construction didn’t have a direct effect on the aging inventory, the overall rent growth and low interest rate climate helped fuel the peak in apartment demand. This combination is what drove prices to historic levels, and continues to fuel the optimism in the multifamily investment market. Investors targeting the Oklahoma City MSA for stabilized assets can expect CAP rates averaging in the mid to high 5% range for Class A assets. Class B assets are trading at 50-75 basis points higher, and the stabilized Class C inventory is trading between 7% to 8%. There were some Class C transactions that traded below the 7% threshold for stabilized properties, but those were properties with some value-add component, and complexes with cash flow that need some enhancements to push rents or reduce vacancy. 

We are now at an interesting point in our economic history. Unemployment continues to hover near the all-time low for this real estate cycle at 4.9 percent nationally and 4.3 percent in Oklahoma City. Although GDP is down from the previous year, at 1.60% it’s still trending up from the first half of 2016 and consumer sentiment continues to increase at 98.2, both positive indicators going into 2017. Oklahoma City’s apartment market continues to see positive rent growth, albeit in a mixed bag. In 2016, we surveyed 373 market-rate, senior and student properties for a total of 77,375 units. The average rent for the entire MSA increased 3.46% year over year to $0.90 per square foot; below the 4.52% rent growth experienced in 2015, but above the 28-year historical average of 3.05%. Rent growth doesn’t have to top records to indicate a strong rental market, so although rent cuts were seen in a handful of properties, the overall market remains healthy. Those that did suffer cuts in their asking rent were primarily due to increased competition from a surge in localized supply, therefore is expected to be short lived as those new units are absorbed. Fortunately, Oklahoma City’s overall rental health was able to overcome those few outliers and provide the 23rd consecutive year of positive rental growth, accompanied by positive price appreciation. In 2016, Class A assets experienced the largest overall rent growth, but also experienced the largest occupancy decline. Class A average rents increased 11% to $1.23 while the occupancy is 89%, a 5.3% decrease from 2015. This is the first time in recent history that the stabilized occupancy of Class A communities dipped below 90%. Both Class B and C assets had an overall rent reduction of 3.14% and 1% to $0.97 and $0.79 per square foot respectively. Class D average rents increased 8.6% to $0.67 per square foot; however, it should be noted that Class D averages are typically the most volatile because they are properties that are highly distressed. Similarly to the Class A rents and occupancy, on a sub-market level, the Urban Core experienced both the largest decline in occupancy and the largest increase in average rents. The average occupancy at the end of 2016 was 87%, down 8.4% from the previous year. Rents increased 8% to an average rental rate of $1.50 per square foot. While the Urban Core’s average rents increased, it should be noted that the majority of the increase was in the efficiency and one bedroom units, while the two and three bedrooms experienced a decrease in rents of 2.17% and 5.16% respectively. 

We surveyed a total of 35 senior properties having a total of 4,596 units. The year over year data reflects no change in the occupancy at 96% and just under 1% overall rental growth. Senior communities are averaging $1.96 per square foot, with all unit types remaining relatively flat with only the efficiency style units increasing by four cents to $3.14 per square foot. One, two and three bedrooms’ unit’s average $1.98, $1.94 and $0.79 per foot, respectively. Senior communities in this report are typically apartments with an age restriction of 55 years old plus, and provide minimal services such as common area activities. This survey does not include properties that provide medical services such as assisted living centers. 

Nine student properties were surveyed this year with a total of 1,852 units, or as most properties are rented, 6,043 beds. With the largest university being in Norman, the bulk of the student properties are in the Moore/Norman sub-markets which has the highest student population compared to any other sub-market in our survey. Second highest student population would be the Edmond sub-market with two universities inside its boundaries. The year over year data reflects a decline in occupancy of 12.5% to an average occupancy of 84%. Further, the survey showed that rental rates increased year over year by fourteen dollars to a per unit rate of $1,631, or an average of $590 per bed. This is only a 1.72% increase on the per bedroom rents, and below what most would expect for a student market. One large contributor to the decline in occupancy and virtually flat rent growth is the continued development of new, on-campus student housing provided by the university itself. This was also experienced in Stillwater at Oklahoma State University, and took roughly three to four years for the market to stabilize after the new inventory. 


Construction completions have been mounting during the past several years, with the more noticeable effects in the Urban Core. In 2016, Oklahoma City saw 3,400 units delivered, one quarter of which were added to the Urban Core. Of the 3,400 new units were delivered, the market only absorbed 1,454 thereby decreasing the overall occupancy as described above. Often we receive questions regarding why developers continue to build when the market has already signaled a softening, and the basic answer is they are simply fulfilling projects already in their pipeline. In discussions with the development community, there are very few developers who have a positive short-term outlook, and are hesitant to add additional inventory. Even with low interest rates and special funding sources such as HUD, Fannie Mae and Freddie Mac, unless there is demand there is no reason to build more apartments. Therefore, 2017 is expected to see deliveries of just over 2,650 units, with approximately 2,500 are in the late planning stages. Given the current economic conditions, a large percentage of those planned will not likely see construction until the demand increases. 

Although we are experiencing historic construction on a national level with approximately 300,000 units delivered in 2016 and another 350,000 expected to be delivered in 2017, it’s important to take into consideration Oklahoma’s development history. In the early 1970’s and 1980’s apartment construction exceeded our current deliveries by more than 20% annually. Although we are at a near term high, we are still well within charted territory. One difference between then and now is the type and quality of product coming to market. Nationally, roughly 80% of all new construction was considered “luxury” rentals, and Oklahoma City is no different. This has caused more pressure on occupancies for those communities who are fighting to absorb the limited supply of renters that can afford this price point. In contrast, the demand for moderate to low-income rent communities is exceeding supply and continuing to push rent growth above the long-term average. One large contributor to the increased demand for rental housing is the continued shrinking of homeownership rate. Estimates show that 6.3 million additional mortgages would have been made between 2009 and 2015 if lending standards had stayed in line with historic norms. Instead, qualifications for purchasing a home are more stringent now than they have been for many years. 2016 ended with a ten year low in homeownership rate at 63.3%, down just over 8% from the high of 69.2% in 2004. This indicates that most of the new household formations annually are choosing rental housing over home ownership. Contributing to the problem, the largest problem for the new luxury properties is affordability. While annual US wage growth was 3.9% year over year, the average rent growth for Class A properties was just over 11%. The imbalance is making affordability difficult for the average renter and creating a competitive marketplace to attract them. This is the reason for the large decrease in occupancy and increase in concessions. 

In 2016, there were several deliveries worth noting throughout the market. Two of the most notable were due to their location and their continued pushing the bar on luxury, The Lift and The Metropolitan. Both very similar on multiple facets, both located in the Urban Core, both 329 units, both urban construction and both pushing rents above $1.60 per square foot. The Maywood opened Phase II in 2016, adding an additional 160 units to their existing 139. This property is a partnership involving a developer who has become one of the largest developers in Oklahoma City, Charlie Nichols with NE Development. NE Development also added 216 units in Midwest City with Boulevard at Lakeside and has multiple other developments in the works. Continental Properties entered into the Oklahoma City market with a bang adding 474 units’ total, with 222 along Memorial Road at Springs at Memorial, and 252 in South Oklahoma City at Springs at May Lakes. 

As mentioned, the pipeline remains active; however, deliveries were likely to have peaked in 2016, with a decline of nearly 35% expected for 2017. A few noteworthy projects under construction will add to the Urban Core despite the decrease in occupancy since 2015. One project that has experienced it’s fair share of unexpected delays will finally be complete in 2017 is the Steelyard located in Bricktown. This project is in a premier location, and will be the first for rent housing located directly inside the Bricktown entertainment district. The same struggle to attract residents that is felt in other parts of the market for luxury properties shouldn’t be as prevalent in the Steelyard due to its location. This will be the closest for rent housing to the core of the entertainment district, as others located inside of Bricktown have traditionally been for sale housing. Another project that is likely to be somewhat isolated from the ebbs and flows of traditional housing is the renovation and conversion of the historic First National Center. After many years of neglect from financially constrained owners, and legal battles; First National finally has the best chance so far to reaching its glory. A partnership of two successful and very active developers closed on the $23 million purchase in late 2016, and plan to open doors as a luxury boutique hotel, with ultra-luxury and exclusive rental housing in 2020. This seems like a long time to turn a property, but with a projected budget of approximately $200 million, this renovation is no ordinary value-add purchase. Once completed this project will add a level of rental housing that Oklahoma City has lacked, and should rival projects in nearby markets such as Dallas, Denver or Saint Louis. 

Also located within the Urban Core and adding, even more, units is the 345 unit “The Residences.” This new addition to the Film Row district is designed to create a community around the 21c Hotel and Museum, which is why it’s often referred to as the 21c Apartments. The property is being constructed in an area bound by Classen Boulevard to the west, West Main Street to the north, Fred Jones Road to the east and West Sheridan Avenue to the south. With the addition of The Residences, the Urban Core will have another 804 units added to the existing inventory in 2017, and another 500 plus units planned or underway. 


Multifamily investment sales remain strong with just over $300 million in total volume for 2016. This is down approximately 30% from the historic high Oklahoma City experienced in 2015 but still 22% over the ten-year average and even 7% above the five-year average. 

Breaking the transactions down by asset class gives you a better indication of overall market health and performance. Overall volume was down in each asset class; however, traditionally the largest variable in total annual volume is the level of Class A transaction activity. In 2016, the Class A transaction volume was $94,301,250, an 18% decline from 2015. This volume consisted of three transactions totaling 807 units for an average price per unit of $116,854. This average price per unit was 3.6% above 2015’s average, and is the new high average price paid for Class A properties. One large transaction worth noting was the sale of the 35 West Apartments in the Moore-Norman sub-market. Newly constructed, 35 West reported the highest per unit concession in the entire market for the 2015 market survey. This transaction is a good example of how a property can struggle to lease units when supply exceeds immediate demand, but demand will catch up and it will eventually stabilize. Class B transactions were down by 50% from $86.5 million in 2015 to $43.1 million in 2016. Although this was a significant decline in volume, the price per unit remained relatively flat at just over 1% growth to $79,110 per unit. 

Class C assets had the largest price per unit increase for 2016, averaging $37,604. This number includes stabilized and distressed properties, so to get a more reliable number for stabilized transactions we remove any non-performing sales bringing the average price per unit up to $39,754, a 4.23% increase from the previous years performing average. There were a total of 4,370 Class C units that sold in 2016, generating $164 million in total sales volume. There was only one transaction that was considered a D Class asset, which is typically referred to as virtually or completely abandoned. Typically these are properties considered beyond repair and need to be razed; therefore, they can be purchased for pennies on the dollar compared to assets of similar age, but have a significant cost to cure the damages and bring back to life. The one transaction was a property that has been shut down for years and all 160 units were vacant. The buyer paid $650,000 which was just $4,062 per unit. 


After seven years of expansion, it would make sense that moderation has to set in sooner or later. However, the stock market continues to rally, there is solid economic growth, and most think the Fed is poised to raise interest rates. With that said, there are so many conflicting indicators making this truly a difficult market to predict. While most say the Fed will raise rates two, maybe three times in 2017. Mike Shedlock of Sitka Pacific writes a pretty compelling argument as to why they won’t hike them in his blog “Five Reasons Fed Won’t Hike Even Twice in 2017”. He explains that although unemployment is down and GDP is up, there appears to be a weakening in housing starts, the strengthening dollar is hurting exports, retail sales are weaker than expected and then the wild card with President Trump’s new policies. So, take a pick. Behind door number one the economy is robust, markets are improving, and the new president’s changes will usher in more infrastructure projects (specifically affecting Oklahoma the Keystone Pipeline). Equity that remains on the sidelines will continue seeking placement and commercial real estate will offer the hedge against the volatility of the stock market. If these occur, then behind door number one we will likely see another two or three prosperous years ahead. Or behind door number two interest rates go up, possibly three different hikes and as much as 100 basis points overall. Consumer spending tightens and job growth slows down and in turn causes the multifamily investment market to slow down. Cap rates have been so compressed by an aggressive market to a point where returns have been so diluted that any significant increase in interest rates will make what little spread previously existed virtually nonexistent without a price reduction. 

Regardless of which door opens, the forces that have produced the best multifamily market in history still remain largely in play; however, from a predictive standpoint one would have to believe the market will continue to reduce to a level closer to historical numbers. While unemployment is at a virtual full employment level and there is a positive outlook on GDP, interest rates are still expected to rise. Even if they do increase a couple times over 2017, as long as they don’t increase more than 100bps we will remain low when compared to a historical level. There is no question that if the new administration increases infrastructure spending that it will create jobs, and with job growth comes multifamily demand. Locally we still have one other wild card that fortunately seems to be moving in our favor. Oil prices. After bottoming out in January of 2016 oil prices have been on a steady path towards a healthy level as it relates to Oklahoma City’s economy. Ending 2016 at just over $50 per barrel, rig counts have already started to increase from 54 in February to 86 in December. Although local energy companies shed a large number of jobs in 2015 and 2016, they have already announced their plans to increase their drilling budget and if oil prices continue at the current pace, will likely give Oklahoma the second wind it needs to weather most national economic storms. 

In discussions with multiple lenders the most common denominator keeping their optimism up is their conservative nature. In previous cycles, real estate lending has artificially boosted values, and made it possible for practically anyone to buy real estate. As indicated when home ownership reached its peak of 69%, banks would lend to virtually anyone. The same was true for multifamily lending. Unrealistic projections combined with unqualified buyers or inexperienced operators caused anyone with an interest to become a multifamily investor. Prices peaked and then crashed in what was a very familiar cycle of events. Lenders now say the difference is the borrower. While there is some aggressive lending taking place, the majority of loans today require a decent amount of equity down and are based on either actual income or projections are based on actual market potential, and more importantly from experienced operators. Although cap rates have been compressed, they still provide for sufficient debt service coverage and cash flow. Buyers therefore aren’t held to an exit strategy as their only source of return. In short, it’s possible we’re in a bubble, but it’s much smaller than some bubbles experienced in the past.  

2017 promises to be an interesting year for the housing market. While we remain bullish on our outlook, we are keeping an eye on oil prices and interest rates more so than any other economic indicator. These two variables have the biggest potential impact on the real estate market.  The impact of either cannot be underestimated. Multifamily investments will continue to provide value through steady rent growth, overall high occupancy and low volatility; making apartments the ideal investment for a defensive asset as the economic cycle extends into the eighth year. 

Price Edwards & Company is proud to be the leader in Oklahoma commercial real estate. We are a full service firm headquartered in Oklahoma City. Formed in 1988. We employ approximately 150 professionals in Oklahoma City, Oklahoma providing a wide range of commercial real estate services.