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Energy industry ups and downs impact commercial real estate

Florida investors and developers can gain insights into how economic booms and busts influence commercial real estate by looking at the energy sector over the last few years. In June 2014, a barrel of oil demanded $107, and employment was high among energy industry workers in oil drilling and processing centers in the United States and Canada. Less than two years later in February 2016, oil had dropped to a 12-year low of $26 per barrel.

The layoffs that resulted caused 217,000 U.S. workers to lose their jobs. Hotel occupancy in oil-industry centers fell, and leasing of industrial properties and office space declined sharply. In Houston, 11 million square feet of office space stood empty. New construction projects started during the oil boom compounded the problem of unoccupied office space.

Other employment sectors have begun to ease the pain with government agencies, health care companies and technology companies creating strong demand for office space. Some energy companies restructured their leases so that landlords could continue to collect revenue. Subleasing, however, continues to dilute the market by competing with new properties.

As this information suggests, a person considering an investment in commercial real estate will need to thoroughly consider the short and long-term economic landscape. The financial difficulties of one company could produce an opportunity for an investor. A person about to enter a deal could work with an attorney to gain additional insights about the property. An attorney could evaluate the leases of existing tenants and explain what liabilities a purchase might apply to the new owner. Regulatory issues like zoning could also be studied by an attorney who might negotiate with local authorities to gain concessions important to the ongoing profitability of the investment.

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