This year's low oil prices have softened office fundamentals, while the retail and hotel verticals have prospered.
Oil inventories have expanded to a record 3 billion barrels, and according to Bloomberg.com, hedge funds are betting oil prices will continue to drop. What effects are showing up in commercial real estate as a result of these bottom of the barrel prices?
CBRE’s Energy 2015 report shows strength in the retail and hotel sectors, and some softening in commercial real estate. Unsurprisingly, Houston has seen a dramatic increase in commercial office sublease space. And across the five major energy-driven markets (Houston, Calgary, Pittsburg, Dallas and Denver) sublease spaced increased five million square feet this year. While low oil prices have dampened the markets closely tied to this sector of our economy, the negative effects have been a little lower than initially expected.
On employment, the Oil & Gas industry is expected to have a flat or slightly negative employment trend in 2016. Your engineering and geologist friends are in luck, as those positions are considered relatively secure. Layoffs thus far have centered around regional facilities, production crews, field laborers, and contractors.
On the retail side, availability rates have declined and the decline is expected to continue for another year. Nationally, the availability rate is just above 10% and it’s expected to drop to just below 10% in 2016 (setting a new low record since 2008). Given that the U.S. is expected to soon enter the second phase of this current economic cycle–with interest rates set to rise–a boost to consumer spending from low oil prices will help.
On the hotel side, 2015 occupancy will clock in at 71.6%, an improvement from 2014, and revenue per room should increase 7.1% this year as well.
U.S. businesses appear to be on steady ground. Given strong profits and key investment and activity measures, they are primed for expansion.
