THROUGHOUT THE RECESSION, Oklahoma City has received a tremendous amount of national attention as a result of its relatively stable economy. And that attention is welldeserved. Oklahoma City had a 5.9 percent unemployment rate in July, which put it at the top of the list for metropolitan areas with more than 1 million in population. Plus, the city's multifamily market is showing rent growth this year, a fact that few other cities can boast.

Oklahoma City's stability is attributed to its diverse job base. In addition to being the state capitol, the city is home to Tinker Air Force Base. The city has a large medical industry and education base as well, with a number of universities located in and around the metro area. Another factor in Oklahoma City's success is the energy industry, with the state's two largest oil and gas companies, Devon Energy and Chesapeake Energy, located here.

With all of this good news, Oklahoma City is still feeling the effects of the national recession. Even though unemployment is only 5.9 percent, it is up from 3.8 percent the previous year.

The local real estate industry has been relatively unscathed by the single-family housing meltdown due to the fact that it did not have a large run-up in prices of single-family homes. Instead, the market exhibited slow but steady increases in average prices.

Generally speaking, the multifamily market in Oklahoma City has also been relatively stable. Occupancies have decreased slightly, but at the same time, rental rates have been able to increase. The average occupancy for the metropolitan area is 90.5 percent, a decrease of 150 basis points since mid-year 2008.

But not all submarkets are created equally. While some of the area's submarkets showed declining occupancies, others were flat or showed growth over the past year, according to a recent survey by CB Richard Ellis (CBRE).

The southern half of Northwest Oklahoma City stayed the same at 89 percent, while the northern half of Northwest Oklahoma City decreased from 92 percent to 91 percent. Other areas seeing declines include Southwest Oklahoma City, which decreased from 94 percent to 92 percent; the Edmond submarket, which fell from 95 percent to 92 percent; and Midwest City/Del City, which declined from 91 percent to 90 percent. Still, prospects are brighter in Norman, where occupancies rose from 91 percent to 92 percent over the last year.

A recent review of average occupancies by asset age revealed that for properties built prior to 1980, the average occupancy was 88 percent, while properties built after 1980 exhibited occupancy rates of 93 percent. The results indicate that while Oklahoma City has not been able to escape the consequences of the national economic recession, it is able to maintain relatively healthy occupancy levels.

A year ago, all six of the submarkets covered in the CBRE survey experienced rental rate increases in every floor plan type, which was the first time we'd seen across-the-board increases this decade. But in the most recent survey, half of the submarkets experienced rental rate increases in all floor plan types, while the other half experienced mixed results.

Overall, one-bedroom apartments saw rents climb from $432 a month a year ago to $444 a month this year. And two-bedroom apartments grew from $536 a month to $547 a month during that time. While the growth may not be dramatic, the fact that rents are trending upward is another sign of Oklahoma City's resiliency.

Slow but Steady Pace

Sales activity for the first half of 2009 was similar to the first half of 2008. Eleven properties with more than 50 units sold in the first two quarters of this year. Although transaction activity is similar to last year, it is half of the same period from 2007.

The continued decline in sales activity is caused by the difficult capital markets and the economic recession. The declining national economy and lack of financing also creates a disconnect between buyer and seller expectations. Average sales prices will decline slightly by the end of 2009, as distressed assets will make up a significant number of sales this year.

The average prices for A- and Bquality assets will show slight decreases as investors adjust their acquisition criteria based on the constrained capital markets. The older class of properties (1970s) has contributed the majority of the sales this year and averages $18,555 per unit, down significantly from $26,826 in 2008.

Expect to see Oklahoma City acquire a vacant apartment complex or two over the next year with Neighborhood Stabilization Program funds. The city has a strong interest in helping less fortunate neighborhoods through the use of these funds. The acquired assets will most likely be replaced with higher quality assets on these sites.

Supply and Demand

The Oklahoma City area continues to see new construction of multifamily properties. However, the future pipeline of new construction is minimal. The most active areas for development are still downtown Oklahoma City and Edmond.

The second phase of Lincoln at Central Park, consisting of 432 units, is in the final stages of construction. In the Edmond area, the 302-unit first phase of Fountain Lake was recently completed. Also in Edmond, the Enclave is under construction, as well as the Summit Groves Apartments.

The Oklahoma City area has shown the ability to absorb about 1,000 units per year over the past decade. In today's weaker economy, the current supply of almost 1,200 units available for lease will undoubtedly impact the Class A and B segments of the market and decrease the average occupancy by as much as 1 percent.

But on the whole, Oklahoma City's strong fundamentals, driven by a diverse employment base, has helped the area's multifamily market weather the current storm and positions the market for stronger growth once the economy rebounds.

William T. Forrest is a principal at CB Richard Ellis/Oklahoma. With David Forrest and Eva Wills, he's been involved in the sale of more than 300 properties totaling more than 54,900 units and $1.16 billion in consideration.