CALABASAS, CA—Oil companies may not be entirely happy with the 42% decline in per-barrel prices since this past June, but retail and other commercial real estate sectors ought to be. So writes Marcus & Millichap's Hessam Nadji in the investment services firm's newest Research Brief, which sees a fourth-quarter boost to the economy “as tumbling oil prices support increased consumption and lower costs for manufacturing companies and shipping services.

With oil now priced at $63 per barrel, consumers save approximately $200 million per day in gas expenses, “which may be redirected toward revitalizing holiday shopping following a shaky 2014 Black Friday weekend,” writes Nadji, chief strategy officer at MMI. It just may be the spur to holiday spending that enables retailers to hit their goal of 4.1% year-over-year growth.

“The decline in oil prices should re-route money from oil and gas companies to retailers and restaurants—sectors that offer more growth potential for the consumer-driven US economy,” he writes. An uptick in hiring across those sectors could favor multifamily as well as retail and industrial, Nadji observes, since those who work in these sectors tend to be renters. That bodes well for absorption in the apartment sector, and MMI projects that national vacancy rate will end the year at 4.7%, 30 basis points below the level seen at year-end 2013.

Conversely, energy sector employment, particularly in oil and gas extraction, might lose some momentum as a result of falling gasoline prices, “but this market segment is relatively small compared with the sectors that will expand,” writes Nadji. “Even in metros with significant energy employment such as Houston, where nearly 5% of the employment base is directly tied to the oil and gas sector, hiring momentum should only ease marginally. Houston's addition of 123,000 positions over the last year was the highest in the nation, and this vibrant city will likely continue to add jobs at a steady pace through 2015.”

Furthermore, Nadji says in a Research Brief published last week, that potential decline in energy-related hiring is still in the future. “The steady slide in oil prices has yet to show up in reduced oil production and field staffing,” he wrote this past Friday.

Important factors in determining whether the drop in oil pricing has a long-term benefit to the economy—and a long-term effect on energy industry staffing—will be “the depth and duration of the lower prices,” Nadji writes. Before the price spike at the onset of the 2008-2009 recession, “inflation-adjusted oil prices were dramatically lower than they are today.”

Several newer oil extraction companies are dependent on prices of $80 per barrel, writes Nadji, “and they face heightened risks should oil remain in the $60 range for a prolonged period. However, most drilling and fracking operations remain profitable, and though a prolonged downturn in prices could increase pressure on oil companies, risks remain limited. Considering that much of the pricing pressure has been driven by Saudi Arabia, which also needs the prices closer to the $80 mark, it is unlikely prices will remain low at current levels for a prolonged period.”


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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.