Key Markets Improve with Recovering Energy Prices
- Based on expectations that oil and gas prices would remain stable and that their workforces would expand, energy firms generally leased more office space than they needed between 2012 and 2014 to accommodate future growth. Subsequently, prices fell dramatically and these occupiers wound up with a significant space overhang.
- By midyear 2017, North American office and industrial real estate markets had generally begun recovering from the energy downturn, and the space overhang was being absorbed.
- A recent rise in investor confidence in energy-exposed markets is evident by increasing transaction volumes and recovering asset values in the first half of 2017.
- Hurricane Harvey was expected to have a noticeable, albeit brief, impact on Houston’s employment and economic base; however, the metro region’s main economic drivers—Port Houston, downstream petrochemicals, upstream energy and health care—all were almost completely unscathed. Brief disruptions in crude production and refining occurred, but pricing has since stabilized and is returning to pre-Harvey levels.
- There has been a permanent restructuring of the energy industry’s oil sector. Short-term, high-return onshore operations are the future of North American oil production.
- Due in part to the shale revolution, there has been a global oversupply of crude oil since 2015 despite production cuts by the Organization of Petroleum Exporting Countries (OPEC) and other swing producers, which will restrain oil prices for the near term.