Cushman & Wakefield Occupier Research - Oil: The Commodity We Love to Hate

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The oil industry
Oil production in EMEA reached 485 million bpd in 2014, 20% higher
than 20 years ago. However, there are some disparities at a regional
level. While Europe has seen a decrease in oil production of more
than 40% since the oil price bust, the Middle East and Africa have
seen increases of 38% and 19%, respectively. The Middle East is by
far the largest oil producer in the EMEA region, accounting for over
two-thirds of the supply in 2014. But Europe is the biggest source of
demand, consuming almost as much in petroleum and other liquids
as Russia, the Middle East, and Africa combined.
Energy employment
Energy employment has fallen across many EMEA cities — a trend
likely to continue. Moscow and Abu Dhabi employ the largest
number of energy workers at 90,000 and 60,000, respectively.
Energy-centric cities like Aberdeen, Stavanger, and Norway
employ less energy workers overall, but are still dependent on the
energy industry. Aberdeen employs 38,000 energy workers and
is eight times more dependent on the sector than the Scottish
national average, while Stavanger employs 10,000 energy workers
and is five times more dependent on the energy sector than
Norway as a whole. This leaves both cities vulnerable to oil price
fluctuations and associated pressure surrounding energy sector
employment. Cities with broader business sector employment,
including London, Oslo, and Rotterdam, are less dependent on the
performance of the energy market. In fact, these cities are likely
to benefit from lower oil prices as other industries are buoyed by
lower costs of production.
Office market outlook
Oil companies are weathering the fall in crude prices and its effect
on the economy, becoming increasingly conscious of both real
estate and staff costs. Energy sector demand for office space
across EMEA is likely to fall as a result, but the impact of this
will diverge at the city level. The Moscow office market has seen
rents fall by almost a third year-over-year due to the weakness
of the Russian economy brought about by lower oil prices, trade
sanctions, and increases in new supply. A continuation of these
factors means office take-up and rental growth will be below trend
next year. The high number of energy employees in Abu Dhabi and
the high proportion of energy employees in Aberdeen leave both
cities exposed to the risk of increased vacancy and flat-to-negative
rental growth. But the impact will be felt differently in less energy-
centric cities, including London. Such cities will begin to see oil
and associated companies attempt to reduce real estate costs,
though their diverse occupier base means the effect on the office
market will be limited.
EMEA OIL PRODUCTION
Source: EIA, Macrobond, Cushman & Wakefield Research
EMEA GAS PRICE
Source: Oxford Economics, World Bank, Haver Analytics, Cushman & Wakefield
EUROPE ENERGY SECTOR EMPLOYMENT,
ANNUAL GROWTH
Source: Oxford Economics, Cushman & Wakefield
OIL PRICE VS. EMEA RENT CORRELATION
Note: Rental is average rent for the seven tracked markets in EMEA
Source: EIA, Cushman & Wakefield Research
-80
-60
-40
-20
0
20
40
60
200420052006200720082009201020112012201320142015
Thousand people 0
100
200
300
400
500
600
700
$0
$20
$40
$60
$80
$100
$120
$140
20072008200920102011 2012201320142015
Q2-2016
GBP per sq m per year $ per barrel (Brent)
Oil Price Office Rent
$0
$2
$4
$6
$8
$10
$12
$14
2009 Q22010 Q22011 Q22012 Q22013 Q22014 Q22015 Q22016 Q2
$ per mil. BTUs
350,000
370,000
390,000
410,000
430,000
450,000
470,000
490,000
510,000
19941996199820002002200420062008201020122014
Thousands of bpd
2015