Metro office market running low on energy

The Oklahoman’s coverage of energy and the office market give regular readers a good handle on the ups and downs and ins and out of both, and how they interact.

In case you missed it, CBRE summarized things in its 2017 Energy Trends Report. Rodney Provience, analyst with CBRE Americas Research’s Texas-Oklahoma Division, sent me a copy.

Here are some national highlights, plus a hard-eyed local observation or two.

• “Based on expectations that oil and gas prices would remain stable and that their workforces would expand, energy firms generally leased more office space than they needed between 2012 and 2014 to accommodate future growth. Subsequently, prices fell dramatically and these occupiers wound up with a significant space overhang.”

And how.

• “By midyear 2017, North American office and industrial real estate markets had generally begun recovering from the energy downturn, and the space overhang was being absorbed. A recent rise in investor confidence in energy-exposed markets is evident by increasing transaction volumes and recovering asset values in the first half of 2017.”

Not so much here.

• “There has been a permanent restructuring of the energy industry’s oil sector. Short-term, highreturn onshore operations are the future of North American oil production.”

Yes, and that’s the story of this generation. The oil business as we knew it, the one that would come and go from time to time, is gone for good. Video killed the radio star. Technology — horizontal drilling, slant derricks, multiple-borehole rigs, and ready access to shale oil deposits — killed J.R. Ewing’s way of doin’ bidness.

• “Due in part to the shale revolution, there has been a global oversupply of crude oil since 2015 despite production cuts by the Organization of Petroleum Exporting Countries (OPEC) and other swing producers, which will restrain oil prices for the near term.”

Tech gives, and tech takes away.

Regarding Oklahoma City, CBRE reported:

• “The energy industry remains a mainstay of Oklahoma City’s economy. Local employment growth was steady during the recessionary recovery and the fracking boom, reaching a peak annual growth rate of 2.4 percent in 2014. As oil prices began falling in 2014, employment growth turned negative (minus 10 basis points in 2016), primarily driven by losses in mining and energy-related manufacturing.”

Sounds about right.

• “Office demand growth was robust leading into 2014, as energy companies focused on expansion of their upstream operations. But the oil price crash later that year led to a complete reversal in strategy in favor of consolidation, ranging from the systematic disposal of peripheral buildings outside of core campuses to an attempted sale of an under-construction headquarters building.”

Dispersal: Chesapeake Energy. Headquarters for sale: SandRidge Energy.

• “The combination of space consolidation and employment losses resulted in a spike in both vacancy and sublease space.”

Yep.

• “Office vacancy is still rising in the wake of the energy pricing downturn, reaching 14.8 percent this year. Sublease space availability spiked in 2016, more than tripling its predownturn level as several full-floor listings were returned to the market.”

And by almost all accounts, things will get worse before they get better.

• “From 2012 to 2014, the office market registered overall positive net absorption of 242,360 square feet. In the following two years, there was 804,660 square feet of negative net absorption. This 1 million-square-foot swing was caused almost exclusively by the energy industry downturn.”

It’s a different kind of Oklahoma Swing, and this time, as far as I know, there’s no new dancing partner waiting in the wings.

See the CBRE report online here: www. cbre.us/research-andreports/2017-NorthAmerican-EnergyTrends-Report.