X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

HOUSTON-The region’s office market benefits from strong demand from energy-related companies as high fuel prices produce mixed results in the office sector nationwide, according to recent analyses by major brokerage firms. Reports suggest office markets in cities like Houston and Denver, with a high percentage of energy-related firms, are faring relatively well in the current economy, but high gasoline prices could dampen demand for suburban office space and could push development into more of an urban versus suburban direction.

Cushman & Wakefield Inc.’s recent report gives some idea about how the commercial real estate industry is viewing the impact of rising gas prices. It is entitled: “Hunkering Down: With oil prices adding insult to economic injury, real estate is starting to feel the effects.”

The C&W report says the spike in global oil and natural gas prices this year–and the strong likelihood that they will remain above $100 per barrel for some time–”will have an enormous impact on the global economy, holding back growth, redistributing wealth and increasing inflationary pressures.” The effect on the real estate industry will be: “slowing demand, creating new sources of capital and putting upward pressure on building operating costs,” C&W’s team concludes.

Much of the analysis of the effect of rising gas prices on the office market remains in the realm of conjecture for now because the $4-plus prices this year are so new that analysts aren’t sure exactly how the prices will play out in the long term, vis-a-vis the office market. But even the mainstream press has noticed: A Newsweek article recently suggested high gas prices will drive development to urban centers to the detriment of suburban office projects. A contrarian view is that people who live in the suburbs will want to work there instead of driving to urban centers, which will boost demand for suburban offices.

At Milwaukee-based Robert W. Baird & Co., financial analysts say that the risk of continued pressure from higher-than-expected energy prices could exert pressure on REIT operating margins.

Online site “Investment News” recently reported that, with the price of gas spiking more than 30% since January, some financial advisers and other small business owners are starting to open offices closer to home to reduce driving. Associated Press reports that “Georgia House Speaker Glenn Richardson is letting staffers telecommute one day a week this summer” as a way to save on spending for gas. Reuters’ reporters have found some organizations, because of soaring gas prices, are cutting back the number of days that employees are required to physically show up at work while other workers are being assigned four-day workweeks to reduce commuting.

The bottom line from most analyses is the long-term effect of high gas prices on the office market has yet to be determined. The C&W report on the effect of rising oil prices on the world economy, however, does sound a hopeful note: “In the long term, a return to employment growth in 2009 will lead to stronger leasing activity and rising rental rates. Real estate will demonstrate its resilience to this latest economic challenge.”

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 3 free articles* across the ALM subscription network every 30 days
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?

Dig Deeper

GlobeSt

Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.