The Price of Energy
- Oct 01, 2015
When the price of gasoline at my local BP station fell below $2 a gallon in mid-September, three thoughts drifted through my mind: Had I traveled back in time to 2004, the last year AAA recorded September prices so low? How much would I save if gas stayed this cheap, and what could I do with the extra cash? And finally, how much longer could this go on?
After all, I was paying a dollar more per gallon only a year ago, and since then there has been much speculation as to how long the U.S. energy market could endure declining crude prices in the face of global overproduction. (Apart from a rally in the spring, the price has lingered below $50 per barrel since January, a far cry from the $90 to $100 that a barrel was commanding prior to July 2014.)
When CPE reviewed the health of the energy markets in June, these recent boomtowns were no longer booming. However, optimism and diversification were rallying cries in Energy Central (aka Houston). Companies across the oil production markets were laying off field workers but retaining engineers and office employees, suggesting a negative short-term outlook but more positive expectations for the long term.
Fast-forward four months, and reports on both the energy markets and companies remain mixed, illustrating how uncertainty remains about the impact of U.S. shale production on the global oil market. A September report from CBRE Research, for instance, maintains that measurements of company productivity have been underestimated but also warns of continued volatility.
The impact of falling oil prices on real estate likewise continues to be mixed, both within top energy markets and around the country. Office sublease space has increased significantly in energy markets, yet retail availability has tightened. And three of the most active U.S. markets for apartment completions are also energy cities—Dallas, Denver and Houston—although multifamily rents have grown only in Dallas and Denver.
Looking forward, CBRE takes a positive view of the impact of low energy prices on both consumer and business spending. Initially preferring to hold on to their savings, consumers are now beginning to spend them in the retail sector. Companies outside the energy industry are likely to plow the extra capital into growing their business. The benefits should ripple widely through the principal property categories—retail, hotel, industrial, even office.
As temperatures turn colder, then, and oil and gas consumption increases, the outlook for U.S. property performance looks to be warm.