by Christa DiLalo, Associate Market Director, Research Services
The decline in oil prices since mid-2014 has created opportunity for global occupiers. The economic benefits of lower oil prices tend to be diffused broadly through the economy as consumers have more discretionary income to spend. It can boost economic growth, but because the impact is spread through the whole economy the impact on office markets tends to be minor. On the other hand, production of oil tends to be concentrated in a few countries and a few regions in those nations. This can crate opportunity in the office markets of countries that are net exporters of oil.
As of early August 2016, the price of barrel of oil in the U.S. was approximately $40.00 per barrel, or roughly 62% below the price in mid-2014. This decline is having a significant impact on local CRE markets in nations that are net exporters.
One way to see which countries are likely to experience faster growth and which are likely to slow is to look at each country’s net oil balance, taking total national oil production and subtracting total oil consumption. Countries that have a large surplus are net exporters and are being hurt the most from the price plunge. This is where there may be opportunity for occupiers.
Of course, there are many other factors that determine economic conditions in any given country or region, to say nothing of commercial real estate market conditions. But because oil is the most important fuel in the global economy, major shifts in the price of oil can have a significant impact on economies and commercial real estate. As a result, looking at who consumes and produces oil can help us to find opportunities for occupiers.
Christa DiLalo is an Associate Market Director and works with the Principal Economist to prepare cutting-edge research about commercial real estate on a national level. Christa also conducts primary research, data-driven analysis, and forecasting for the office and industrial sectors of Northern and Central New Jersey—one of the largest suburban markets in the country—as a critical member of the firm’s New York Tri-State Research Services group.