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Tulsa's Industrial Real Estate Faces Unprecedented Squeeze Due to Stagnant Construction Activity

Exploring the Consequences of Diminished Construction on Market Dynamics

In the bustling industrial landscape of Tulsa, a notable contraction in construction initiatives over the past year has sparked significant changes. This stagnation in developing new industrial spaces, coupled with a consistent demand for such facilities, has propelled the city's industrial vacancy rates toward unprecedented lows.

As we ushered in 2024, the data painted a stark picture: the construction of industrial facilities in Tulsa has dwindled to its lowest point in more than ten years. This trend mirrors the drastic reduction seen at the outset of the global pandemic when the industrial construction pipeline shrank to a mere 202,000 square feet. Today's situation is even more acute, with ongoing projects occupying only 95,000 square feet, a substantial decrease from prior figures.

This decline in industrial space development in Tulsa seems entrenched, with no immediate signs of reversal. The years 2018 and 2019 witnessed robust construction activity, with each year initiating projects that covered over 3 million square feet. However, the pandemic's onset curtailed this momentum, and while there was a brief resurgence in 2022 with 1.4 million square feet of new projects, the pace has not sustained.

Highlighting this downturn was the commencement of the Tulasi Commerce Park in March 2022. This development, featuring two industrial buildings, infused 684,000 square feet of new space into Tulsa's market. Initiatives like this were in the pipeline before the Federal Reserve embarked on a series of rate hikes, which subsequently dampened the enthusiasm for new construction starts, a trend that has persisted for nearly two years.

Now, vacancy rates in Tulsa's industrial sector are tighter than they have been since 2021, and projections indicate they will tighten further, reaching new historical lows in the near term. The demand for industrial space saw a considerable uptick in 2023, with new leases accounting for almost 1.7 million square feet of space.

Yet, despite these positive signs of occupancy and demand, the broader economic indicators suggest a cooling period ahead. Employment in key sectors such as trade and transportation is on a downward trajectory across the Tulsa metropolitan area, with job growth turning negative over the past year.

These employment trends are casting a long shadow over the industrial real estate sector in 2024. The expected net absorption of industrial spaces is projected to plummet, not even reaching one-third of the figures recorded in the previous year. According to CoStar's analysis, the vacancy rate in Tulsa's industrial market is anticipated to fall to a mere 2.5% over the next twelve months, signaling a market that is tighter than ever before. This scenario underscores the intricate interplay between construction activity, market demand, and broader economic indicators, all of which are shaping the future of Tulsa's industrial real estate landscape.

Source: Cobby Gibs, CoStar, MMCG

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