Office Markets Reliant on Energy Tenants Are Bracing for Two Major Demand Disruptions at Once
In addition to the economic impacts of the pandemic, they are being battered by the current oil production wars.
March 30, 2020 | Patricia Kirk | National Real Estate Investor
While the U.S. government is trying to shore up businesses and help laid-off workers affected by widespread quarantines, office markets exposed to energy-related tenants, including Houston, Oklahoma, Denver, and New Orleans, are bracing for a double whammy, as a global oil price war slows U.S. production. About 30,000 job layoffs are expected in Houston alone, according to Houston-based Tyler Garrett, senior vice president specializing in office leasing with real estate services firm Transwestern.
While the ongoing COVID-19 pandemic is the most disruptive force in the global economy, the oil price war precipated by tensions between Russia and Saudi Arabia over market share is having knock-on effects for the U.S. market. Oil prices have dropped by 50 percent since Saudi Arabia and Russia began flooding the market a few weeks ago. This, in turn, has precipitated a tightening of bank lending, reduced investor appetite and has made an energy sector default a strong possibility.
The OPEC breakdown is likely to outlast the pandemic, researchers note. Deutsche Bank’s oil analyst Michael Hsueh projects a second quarter global surplus of at least 6 million barrels per day, a new record for oil markets.
