HOUSTON—No one knows exactly what the price of oil will do in the next year, but one thing is for sure: The Houston commercial real estate market will take a direct hit if the price of crude keeps falling.

While more than 80 buildings and some 18 million square feet of office space under construction in the city last year – according to a recent Wall Street Journal report – all of that could change in 2015 if some energy companies make cutbacks as the current optimism in the market recedes.

“Landlords are watching the price of oil and hoping for a rebound sooner than later,” Mark O'Donnell, executive vice president and co-branch manager of Savills Studley Houston, told GlobeSt.com. “If oil stays down for 18 months or more, landlords will struggle. Many tenants are looking to reduce overhead and opportunities to reduce real estate expense are increasing. Concessions and opportunities for tenants will growth over time if oil stays down.”

According to a recent Colliers International report, Houston's office market posted 2.2 million square feet of positive net absorption in Q4 2014, bringing the year-end total to 6.8 million square feet.

In addition, over 2.1 million square feet of new inventory was delivered during the same quarter, bringing 2014 year-end delivered inventory to over 6.6 million square feet. ExxonMobil began moving into a portion of its new north campus (and is slated to complete its move by the spring) and Southwestern Energy moved into its new corporate headquarters, just south of the ExxonMobil campus.

While the citywide average rental rate decreased slightly between quarters – 1.6 percent from $27.08 to $26.78 per square foot – it is still 3.2 percent higher than it was a year ago. Both CBD and suburban class A average rental rates decreased over the quarter; however, both class B average rental rates rose.

Finally, Houston's office investment sales market is benefiting from the foreign capital that is pouring into the U.S. According to a recent survey by the Association of Foreign Investors in Real Estate (AFIRE), Houston ranked #3 in the top five U.S. cities for foreign investors.

The Houston metropolitan area created 120,600 jobs between October 2013 and October 2014, an annual increase of 4.3 percent over the prior year's job growth. Sectors creating most of the jobs contributing to the annual increase include: mining and logging, construction, transportation, warehousing and utilities, and health care and social assistance. Says Colliers, Houston's unemployment rate fell to 4.7 percent from 5.9 percent one year ago.

“Houston's office market recorded record high asking rental rates in Q1 2014. Average quoted rental rates began peeking mid-year and we saw those rates begin to level off in Q4 2014.  During 2014, Houston's office market experienced lower than average vacancy rates and a huge surge in new construction and deliveries in 2014.” Lisa Bridges, director of market research for Colliers, told GlobeSt.com.

Says Savills Studley Houston research manager Tim Wingfield about leasing: “For 2015, the combination of sinking oil prices, Houston's large development pipeline and the emergence of second-generation and sublet space should lead to rising availability and softening rents.”

“Many tenants are focusing on various workplace strategies to not only reduce costs but to operate more effectively,” says O'Donnell. “Better space utilization, reduced vacancy within a special footprint and alternatives to traditional space utilization are a bigger focus than ever before.”

Houston is one of the top 10 Growth Markets covered in the upcoming issue of Real Estate Forum magazine. For more information on the issue, or to participate, contact Gregg Christensen.