OKC Industrial Market Should Benefit From Rising Labor Costs Across Central U.S.
From a manufacturing perspective, Oklahoma City has historically been considered a “tertiary market” when stacked against South Central and Midwest power players such as Dallas-Fort Worth (DFW), Houston, Kansas City, San Antonio, Austin and Denver.
As large manufacturing users consider multiple markets in the Central United States, Oklahoma City is often included in the initial list but typically fails to make the short list for various reasons. However, as labor costs rise, Oklahoma City may find itself being pushed to the front of the line.
Oklahoma City’s industrial market totals approximately 108 million square feet, making it a smaller market than DFW, Houston, Kansas City, San Antonio, Austin or Denver. Primarily driven by the oil & gas, aerospace and consumer goods industries, this market’s fundamentals tend to move in lockstep with oil & gas commodity prices.
The city has tried to diversify the economy over the past decade and bring in non-oil & gas users. But there is still room for improvement. The metro has seen its share of growth; however, overall industrial construction still pales in comparison to larger markets.
The industrial booms seen in DFW, Houston, Kansas City, San Antonio, Austin and Denver over the past 10 years are well documented. Job creation and construction of industrial product have hit levels not seen since the Industrial Revolution. Industrial parks such as AllianceTexas in Fort Worth have exploded, causing a massive need for labor in surrounding areas.
As the need for labor increases, the laws of supply and demand inherently point to rising labor costs in DFW, Houston, Kansas City, San Antonio, Austin and Denver. Data shows that in comparison to these markets, Oklahoma City can now offer manufacturers affordable alternatives along with a healthy labor supply at a lower cost.
Based on CBRE’s labor analytics data, Oklahoma City came in with an overall average of 112 and a total index rating of 109, placing it first from a labor cost perspective out of the seven cities examined. Index scores are calculated so that they are relative to the national average, with the national indices having a value of 100. Scores above 100 indicate a positive attribute, while below indicates a negative attribute.
According to the index, below is a ranking in descending order:
• Oklahoma City – 109
• Houston – 108
• DFW – 103
• San Antonio – 101
• Kansas City – 99
• Austin/Round Rock – 95
• Denver – 90
Oklahoma City scored well for employers in macro labor costs, courtesy of an overall lower cost of living, lower overhead for manufacturing and distribution and a healthy labor supply market. Assuming that labor costs are a critical data point when manufacturers consider a market, one could infer that Oklahoma City is now more strongly positioned relative to these other cities.
Some initial signs of increased manufacturing in Oklahoma City have begun over the past few years. Many out-of-state manufacturers have recently chosen this market for new projects, including the following companies: Kratos (aerospace), Valkyrie (aerospace), ShurTech (industrial/construction materials), Niagara Bottling (consumer products), Nortek (industrial heating & air conditioning), Boeing (aerospace), Spiers New Technologies (automotive and battery technology).
Two of these businesses are new to Oklahoma City and are now part of the more than 230 aerospace firms in the area. In the past six months, Valkyrie and Kratos have also entered the market. Valkyrie was awarded a 21st Century Quality Jobs Program incentive contract, creating 352 new jobs within the next five years. Kratos has expanded into a 100,000-square-foot facility and intends to employ over 350 employees in the next few years.
Boeing has been long been a market leader and recently underwent an expansion of its aircraft modernization and sustainment division, bringing more than 800 new jobs to the market.
Historically, people follow jobs, and Oklahoma City’s head count is booming. The metro’s rate of population growth should surpass the U.S. average next year, and the city has been taking proactive steps to continue this trend.
There are many new projects geared toward improving both quality of life and the transportation system through the city’s 1-cent MAPS3 sales tax program. The downtown streetcar was recently completed; construction began in June on a $168.2 million convention center and the new 70-acre Downtown Scissortail Park is well underway.
The Kilpatrick Turnpike, also currently in the works, is a seven-mile expansion to connect southwest Oklahoma City to the urban core, allowing for an increased quality of living and easy commute for many Oklahoma City employees. Will Rogers World Airport is also about to begin a terminal expansion, making Oklahoma City more appealing to companies with a presence in more than one market. All of these projects should be completed by 2021.
While Oklahoma City is not likely to join the ranks of DFW, Houston, Kansas City, San Antonio, Austin and Denver tomorrow as a top manufacturing cities, the data clearly shows that this metro has competitive advantages and has become a viable option for many companies and their employees.
— By John Lenochan, senior vice president; Jason Hammock, vice president; and Caitlin Mazaheri, senior associate, CBRE. This article first appeared in the December 2018 issue of Texas Real Estate Business magazine.