9 Office Markets (Other Than Houston) Dealing With Low Oil Prices
Houston is the undisputed energy capital of the world, and the oil glut and decreasing prices are hitting us hard. But we're not alone. Bisnow compiled a list of cities around the globe riding out the same storm as Houston, and analyzed how they're faring.
Moscow is one of the hardest hit cities on the list. The office market has seen rents fall by nearly one-third due to the weakness of the overall Russian economy, which is closely tied to oil and gas production. Trade sanctions and a steady supply of new space have also hindered the city. Though the city is currently undergoing a building boom, it's still in recession.
Around 38,000 employees work in the energy sector in Aberdeen. The city isn't as dependent on energy as others on the list, but is far more tied to the sector than the rest of Scotland. Vacancy is expected to remain flat with only 33k SF in the construction pipeline. One unique factor of Aberdeen is that oil and gas production costs more in the UK than anywhere else due to the deep, offshore nature of drilling and aging infrastructure.
Canada is a resource powerhouse, with more than one-fifth of the nation's economy tied to resources. Alberta is the leading producer of oil and gas, responsible for almost 80% of the country’s total output. Unsurprisingly then, Calgary has been particularly hard hit. It boasts the second-highest concentration of head offices in Canada, including Suncor, Imperial Oil and EnCana, which resides in a 58-floor corporate HQ known as The Bow. As you might expect, the office market is eerily similar to Houston's.
Rio de Janeiro
The majority of energy firms in Brazil are based in Rio de Janeiro, which sits close to the country's largest producing fields. The recently embattled Petrobras, a semi-public multinational corporation with a solid presence in Houston, is HQ'd in Rio. The operation employs over 80,000 workers. Office absorption has declined in Rio, but data suggests it will see an uptick through 2018 as only 401k SF of office space is in the city's pipeline.
The high number of energy employees in Abu Dhabi has left the city exposed to increased vacancy and flat or declining rent growth. Cluttons’ 2016 UAE Property Market Report expects demand to decline close to 5% in Abu Dhabi. The main trend throughout the city is consolidation while many firms take a "wait and see" approach. The market is expected to benefit most from a price rebound, as the Middle East remains the cheapest place to produce oil.
Despite being known as the oil hub of Asia, exposure is limited in Singapore to just 6% of the economy. Yet recent energy weakness has taken a toll on the city. BW Offshore, Modec, Sembcorp and Keppel have all cut production and workers. Making matters worse, there's nearly 4.3M SF of office construction in the pipeline.
Down under, Perth is the city most influenced by the price of oil and gas. Demand for office space has taken a hit, and Perth's vacancy rate increased to over 17%, the highest rate in 20 years. The city's struggles go beyond oil and gas, but the industry sure isn't helping. For now, the city is content with stability, albeit at a lower occupancy than it'd like.
The office market in China operates differently, with many users owning rather than leasing. However, in cities like Dalian, there's a robust office leasing market. Demand for Class-A space is slowing, leaving the market in a static condition. The area may be suffering from slow oil and gas production, but the sector isn't dragging the office market nearly as badly as finance.
Caracas is a case study in and of itself. The negative impact of low oil prices has reverberated through Venezuela's entire economy, which is dominated by oil. The rampant mismanagement of the economy has poured fuel on the fire. Office vacancy has taken a back seat to the growing catastrophic food crisis.
Be sure to join Bisnow for our first-ever National Impact of Oil & Gas on CRE event on Dec 1. The all-day event will feature 40-plus speakers from around the globe sharing news and insight.