Non-Energy-Producing Markets Benefit From Oil Woes

DALLAS—Despite some reports indicating we've reached the bottom of the barrel, researchers with Cushman & Wakefield have a 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.

“Lower oil prices are a net positive for the overall US office market, but cause some strain for many cities and regions with a heavy energy-sector presence,” Thorpe tells GlobeSt.com. “Of course, markets like Dallas and Denver are thriving due to local economies that are now among the most diverse in the US, with Dallas driven by a host of successful corporate relocations, which is also a factor in Denver, along with an enormous public-sector presence.”

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, as Thorpe indicates.

“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.”

DALLAS—Despite some reports indicating we've reached the bottom of the barrel, researchers with Cushman & Wakefield have a 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.

“Lower oil prices are a net positive for the overall US office market, but cause some strain for many cities and regions with a heavy energy-sector presence,” Thorpe tells GlobeSt.com. “Of course, markets like Dallas and Denver are thriving due to local economies that are now among the most diverse in the US, with Dallas driven by a host of successful corporate relocations, which is also a factor in Denver, along with an enormous public-sector presence.”

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, as Thorpe indicates.

“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.”