Slump In Oil Prices Wreak Havoc on Houston’s Commercial Real Estate

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The lengthy rout in oil prices has shattered the office market in the U.S. energy industry core of Houston. Here, over 10 million square feet of real estate remains unoccupied and vacancy rates have reached their highest numbers in 20 years, according to CBRE, a real estate firm.

The number of energy industry employees that have lost their jobs is in the thousands and firms have largely reduced their capital budgets admit the sharp drop in crude prices that remain down more than 50 percent since 2014.

CBRE revealed that 10.2 million square feet of commercial real estate was open to sublease by the end of June. Meanwhile, companies scrambled to get the terms of their leases covered.

The vacant square footage was reported to be almost 19.8 percent of the total available office space in the city, CBRE uncovered, a level that has not been reached since the mid-1990s when oil prices were low.

“When a healthy, growing, energy-driven market is hit with a sudden drop in oil prices, demand will slow,” CBRE stated in its quarterly report.
Earlier in the 2010’s, the Houston had basked in economic growth that was the result of advances in hydraulic fracturing and other oilfield processes that brought about a huge period of growth for the U.S. energy industry.

It was during this period that developers constructed over 26 million square feet of space, comparable to nearly 10 Empire State Buildings.
A large number of American oil companies have their headquarters near or in Houston. CBRE reports that 10 percent of the city’s office space is vacant. In the city’s Energy Corridor, 14 percent of the office space is vacant.

At this rate, CBRE writes that over 1 million square feet of real estate could enter the market as early as September. If this happens, availability across the city could hit 21 percent by 2017.
According to CBRE’s report, many energy firms are using this downtime to encourage landlords to renovate existing offices or to relocate them into nicer offices at the same rates or slightly lower rates.

Article written by HEI contributor Briana Steptoe.

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