business investment and expansion, which, in turn, increases demand for industrial and manufacturing space. Property markets will see a short-term lift due to a combination of improving tenant fundamentals and lower operating costs. However, for major energy-producing metro areas, the short-term benefits of low prices will be discounted by the negative impacts on energy-related firms. The long-term health of the property markets in these metro areas will greatly depend on the speed in which oil prices rebound to sustainable levels for U.S. producers. The national economy overall is better off in the near term. The United States is still a net importer of oil at about $190 billion per year, and the decline in prices positively influences the nation’s trade balance. Lower prices directly translate
nto an increase in
household disposable income. Americans could see $50 billion to $75 billion ($400 to $650 per household) in gasoline savings this year alone.
The impact on property market fundamentals varies by sector:
Office. Office demand is not likely to see an immediate impact from lower energy costs, but lower operational expenses do make office occupancy less expensive and contribute to higher corporate operating profits, which should, in turn, continue to fuel hiring and absorption of additional space.
Retail. Households typically spend windfalls. Retailers reported above-average, and better-than-expected, holiday sales at the end of 2015. Shopping centers and neighborhood shopping centers should benefit further should energy prices remain low to provide a windfall to consumer pocketbooks.
Industrial. The reduction of energy costs helps boost industrial production and lowers distribution costs. Petroleum-based products will benefit from lower input costs, which, in turn, can positively influence manufacturers’ decisions to increase production and occupancy. Demand for warehouse and distribution space should see an increase due to higher consumer spending. E-commerce operations will expand as well, likely resulting in more distribution and storage space.
Hospitality. Hotels benefit as leisure travelers find travel more affordable. And, lower oil prices should result in lower business travel costs, encouraging more business travel and lodging.
Apartments. Increased disposable income means that households will have more to spend on housing, including upgrading to higher-quality apartments. Furthermore, apartments in the suburbs will benefit with the lower costs of commuting.
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