According to the recent study 'Do Oil Prices Hold Real Estate Over a Barrel?' by global real estate adviser Cushman & Wakefield, global real estate markets are most vulnerable in economies that have a high cost of oil production as well as a greater dependence on oil. The aforementioned factors, when combined, would compress profit margins in these markets, forcing businesses to reorganize, downsize, and consolidate their real estate footprint.
Gas, like every other product, has its ups and downs. World oil prices are recovering at this point in the cycle, but they are still working in an environment marked by excess supply. In the short term, high-cost producers have been forced to reconsider OPEC's policy of maintaining output rather than reducing output to support pricing. Oil prices are notoriously difficult to forecast, with prices usually moving sharply and dramatically until they begin to rebound - and analysts are split on the future of oil prices at the moment. While some believe the bottom has been reached, others predict a few years about $50 per barrel due to Saudi Arabia's continued policy of suffocating high-cost competitors, according to the survey. propertyfinder qatar
Since consumer spending is such a critical and malleable medium for oil price volatility, the publication estimates that a 1.5 percent increase in demand from lower oil prices would equate to an additional 1-2 percent rental growth in the UK retail sector in 2015-16. A strong short-term boost to retail rents and returns is anticipated, but this is unlikely to be a long-term driver of returns.
Locations with a high proportion of oil and gas-related production would be the hardest hit by the drop in oil prices. Aberdeen, on the other hand, will continue to be less price sensitive than, say, Houston. The low oil price is giving Aberdeen businesses a chance to catch their breath, reorganize, and restructure on a more sustainable basis. Aberdeen's rent has historically remained stable, despite oil price fluctuations, due to its scale. The city has been stretched by an unprecedented period of growth, resulting in massive supply and demand imbalances, with residential rents and traffic posing obstacles to attracting a stable long-term labor force. Despite the fact that incentives are beginning to soften - but remain low in relation to UK national averages - and prime rents are under pressure, the long-term fundamentals remain high, and speculative growth is on track.
On balance, the benefits of increased demand and the potential for this to positively affect rental growth in the retail sector, as well as the boost to the non-oil producing corporate sector through lower costs, are likely to outweigh the negative impact on key oil-producing locations in the UK.
"Oil markets change rapidly and unpredictably," said Polly Plunket-Checkemian, head of EMEA Research & Insight at Cushman & Wakefield. The cost of a barrel of oil was about US$45 per barrel when we first started looking into the effects of lower oil prices on real estate. Prices have risen to around US$60 in the intervening weeks, and they will undoubtedly adjust again in the weeks ahead. Nonetheless, the big picture is that oil prices are still 40% lower than they were in mid-2014 - above US$100 - and production is still high, with no clear downward trend yet visible. "As a result, the impact of lower oil prices on economies and real estate markets remains critical to the prospects of occupier markets around the world, none more so than in those economi