HOUSTON—Despite some reports indicating we've reached the bottom of the barrel, researchers with Cushman & Wakefield have a slightly different take. The firm recently released its occupier research report, “Oil: the Commodity We Love to Hate,” which assesses the impact of lower oil prices on each of the world's major energy cities and provides insights into office sector fundamentals going forward.

The report states that, barring a production freeze or unforeseen event, oil prices are expected to remain below $60 per barrel through 2017, and most experts forecast below $70 through 2020. The impact of a protracted low-oil-price scenario is mixed: energy-producing regions struggle while consumers and non-energy producing markets benefit.

“While the positives from lower oil prices outweigh the negatives in terms of impact on global economic growth, the effects on the office market are more of a mixed bag,” said Kevin Thorpe, Cushman & Wakefield's global chief economist. “Most energy-producing office markets have seen economic slowing and lower occupancy levels, while stronger consumer spending has boosted occupancy virtually everywhere else. For occupiers, the prolonged oil price rebalancing will create efficiency and cost-saving opportunities in some markets, but rental pressure in others.”

Overall, the plunge in oil prices has had a net negative effect on the world's largest energy-producing markets. As a group, these markets are experiencing slower economic growth, slower job creation and weaker office sector fundamentals. However, while office markets such as Moscow, Aberdeen, Calgary and Houston have faced significant headwinds due to the oil shock, others are holding up well and even thriving, says the Cushman & Wakefield report.

“Major energy-producing cities such as Houston face the most significant headwinds,” Thorpe tells GlobeSt.com. “Houston was in the midst of a construction boom when oil price began to correct. So from that perspective, it was double whammied, and inevitably we are seeing vacancy rise and rents soften in certain pockets of the market. However, this is no longer the Houston of the early 1980s. Over the years, Houston has also become a far more diversified economy. Other sectors such as healthcare, retail and professional services are helping Houston weather the storm. Houston has absorbed 337,000 square feet midway through 2016–slower, but still in growth mode. So resiliency is the word to use there so far.”

In the United States, which is poised to surpass Saudi Arabia as the top-producing country globally, oil-centric markets led by Houston and Oklahoma City register some of the highest vacancy rates in the nation. Office markets in energy-centric metros with more diverse economies have held up much better. These include Dallas and Denver, the latter of which has reported year-over-year rents accelerate to 7% in the second quarter of this year.

“With oil prices remaining low, occupiers in many markets will benefit from lower office build-out costs and lower space energy costs,” said Thorpe. “The window of opportunity will not remain open for occupiers forever, however. Many energy cities have strong long-term fundamentals and the energy sector will ultimately recover.”

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Bottom Might Not Be Where We Think

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