Houston's availability rate has climbed more than 500 basis points in the past year. (Photo by Henry Han) Houston’s availability rate has climbed more than 500 basis points in the past year. (Photo by Henry Han)

CALABASAS, CA—In a reversal of the old adage, some silver linings have clouds, too. The boon that US consumers are enjoying thanks to lower prices at the gas pump may come at the cost of shock waves throughout the broader economy, Marcus & Millichap says in a new report.

“US crude inventory has increased more than 20% since year-end 2014 and OPEC members continue to pump at elevated levels in an attempt to weaken US producers,” according to the latest Research Brief from MMI. “The supply glut and downward price pressure could potentially worsen as Iran ramps up production as sanctions are lifted and the US exhausts storage capacity.” These trends have “ruffled global financial markets” while raising questions of how deeply energy sector woes will affect other segments of “the reasonably strong US economy.”

Previous declines in oil prices have enabled domestic consumers to save at the gas pump and spend on other items, “while taking money out of the hands of foreign producers,” says MMI’s report. “Increasingly, savings at the pump have come at the expense of domestic producers, triggering reductions in US energy-sector budgets and layoffs that impact economies in oil-producing regions.”

An article in last week’s Wall Street Journal put the spotlight on a local economy that has been hit hard by oil prices that hover around $30 per barrel: Houston, and specifically its office market. Citing data from Savills Studley, the WSJ reported, “In the fourth quarter of 2015, the amount of sublease space on the market in the Houston area hit 7.6 million square feet, or the size of more than two Empire State Buildings, up from 4.5 million square feet a year earlier.” In all, 23.2% of Houston offices were vacant or otherwise available in Q4, up more than 500 basis points from a year earlier and well above the national rate of 16.2%, according to Savills Studley.

MMI puts the national office vacancy rate at 14.9% and falling as Q4 ended, while rents rose 4%. In Oklahoma City as well as Houston, both of which have high concentrations of oil-related workers, “energy-sector cutbacks in spending and staffing were evident” during Q4, according to MMI. The firm predicts a continuing rise in sublease space in these markets.

Additionally, downsizing in the energy sector—some 94,000 layoffs as of year-end ’15, a tiny 0.1% increment of total US payrolls—has represented only the tip of the iceberg, MMI points out. “Collapsing oil prices have distressed bonds linked to oil and gas firms, and banks including JPMorgan Chase and Wells Fargo are setting aside billions to cover potential losses,” according to the Research Brief.

In an echo of the extension of repayment schedules in the mortgage market during the financial crisis, MMI notes that many lenders have been reluctant to press for payment of outstanding balances “at the risk of potentially bankrupting energy-sector companies.” Furthermore, the report says, “Potentially higher yields on lower-rated energy-sector bonds may also raise rates on other borrowing.”

Within the energy sector, “declining activity in the oil fields will potentially reduce demand in the coming months for warehouse space used for the storage and distribution of drilling equipment and supplies,” according to MMI. Yet the firm is also confident that retailers and e-commerce tenants are capable of picking up the slack in logistics demand.

It’s a little ironic that one effect of depressed oil prices that was widely predicted—greater consumer spending elsewhere—hasn’t materialized. “US consumers pocketed an aggregate $115 billion from lower gas prices in 2015, yet the savings did not translate into large increases in retail sales,” according to MMI. “Personal savings rose by more than $100 billion last year, suggesting that the savings at the pump are not recirculating through the economy.”