Press Release

CBRE: Key Markets Improve with Recovering Energy Prices

03 1月 2018

2017 CBRE North American Energy Trends Report Cover

New CBRE Report Finds That Denver’s Diversified Economy Helped It Weather Energy Downturn Better Than Most Markets; Globally, Oil Producers Adapting by Restructuring Operations, Increasing Efficiency and Exploring Alternative Energy Sources
 
In the wake of an energy industry downturn that caused oil prices to plummet and rocked energy-exposed office and industrial markets across North America, most of those markets have begun recovering as of mid-year 2017, according to CBRE’s 2017 North American Energy Trends report
 
While the energy industry may never be the same, oil producers are adapting to the new landscape by restructuring to focus on onshore operations, increasing rig efficiency and in some cases, exploring alternative energy sources. In markets like Denver, other industries are stepping up to backfill office space left vacant by oil and gas companies, and cross-border capital investment is on the rise. 
 
“Based on expectations that oil and gas prices would remain stable and that their workforces would expand, energy firms generally leased more space than they needed from 2012 to 2014. Subsequently, prices fell dramatically and these occupiers wound up with a significant space overhang. The good news is data shows the excess space is generally being absorbed in key North American energy markets, and investor confidence in those areas is rising as indicated by increasing transaction volumes and asset values,” said Matt Vance, economist and Director of Research and Analysis for CBRE in Colorado. 
 
In Denver, the recent energy industry contraction is felt most strongly in the downtown office market. Despite layoffs and industry consolidation, the downtown office market has remained relatively healthy, with demand from other industries picking up the slack. 
 
“Although we have seen a large bump of sublease space enter the market as a result of the energy downturn, we are fortunate in Denver that the timing has aligned with a strong period of population and job growth along the Front Range. Other industries including professional services, healthcare and technology are eager to enter or expand in our market, helping to absorb much of the residual space left by energy companies either exiting Denver or reducing their footprints,” said Anthony Albanese, First Vice President and co-leader of CBRE’s Energy Facilities Group. 
 
Today, oil and gas companies account for 17.8 percent of Denver’s downtown office market. The downturn did cause a large amount of oil-and-gas office space to be listed for sublease, reaching 863,000 sq. ft. last year, but that number since has receded to 660,000 as of this year’s third quarter.
 
Globally, it is estimated that more than 440,000 oil and gas jobs were lost from the beginning of the crude price slide through 2016. In Denver, oil and gas jobs are relatively few, accounting for just 1.4 percent of the city’s total employment. Nearly 3,500 energy-related jobs in Denver have been cut since the downturn, although energy employment has grown again in the last six months. 
 
When it comes to capital markets, Denver was perhaps the least affected during the commodity price collapse among energy markets analyzed in the report. The city’s rapid employment growth in professional services, consulting, software publishing and computer systems design, and the overall robustness of the economy, provided near immunity to energy softness in terms of investment activity and asset pricing. Denver saw an increase in cross-border capital flows to $535.2 million in the first half of 2017, up 15.9 percent from the same time in 2016. 
 
Global Trends Impacting the Energy Industry
 
Perhaps the most significant trend to emerge from the recent downturn is the permanent restructuring of the energy industry’s oil sector. The report finds producers are shifting away from capital-intensive offshore production in favor of short-term, high-return onshore operations (also known as fracking). As Colorado falls within one of North America’s top fracking regions, an increase in onshore oil production could trigger increased demand for energy-related office space in Denver.  
 
Another trend identified in the report as contributing to the energy industry’s recovery is the decline of production costs due in large part to a rise in rig efficiency. Since the price shock in 2014, production per rig in some of the major U.S. shale regions has nearly tripled. A rise in production efficiency has allowed energy companies to continue to operate—and in some cases still turn a profit—despite the dramatic drop in price per barrel of oil. This in turn has helped firms preserve jobs and maintain a presence in certain markets.  
 
While efficiency has risen, experts do not expect oil prices to return to pre-crash levels. One reason is declining global demand for crude oil. Experts estimate that oil demand will peak as early as the late 2020s through 2040. Major oil producers have responded by diversifying their product offerings to include petrochemicals, natural gas and renewable technology. 
 
“Preparing for global shifts in energy use—versus reacting—is one way energy companies are working to ensure their long-term success. As these companies continue to evolve, we expect them to remain an important contributor to our economy—creating jobs and buoying commercial real estate sectors in Denver and around the world,” added Albanese. 
 
To read the complete 2017 North American Energy Trends report, click here
 
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2021 revenue). The company has more than 105,000 employees (excluding Turner & Townsend employees) serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.