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

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A major net importer of oil
Generally, markets in the Asia Pacific region have benefited from
the weakness in oil prices. The filtering down of lower oil prices
to lower food and fuel prices has subdued inflationary pressures,
boosted consumer spending, and given Asian central banks
greater scope for monetary easing. Although APAC’s direct
exposure to the energy sector is relatively small, certain pockets
within the region are oil and gas producers, and those areas are
being negatively impacted.
Office sector – Minimal impact
The footprint of oil and gas companies is relatively small in
the Asia-Pacific region — estimated at less than 10% of total
occupancy. As such, the impact of the slump in oil prices on
office space has been relatively muted. Low oil prices have
affected companies in the offshore and marine sector, with many
downsizing to stay afloat. In Singapore, BW Offshore and Modec,
for example, have carried out retrenchment exercises as demand
for new floating production projects declined. In addition, Keppel
Corporation slashed its Singapore sub-contract workforce by
7,900, while Sembcorp Marine revealed plans to release 3,000 to
4,000 workers. However, monetary authorities in Singapore have
reiterated that any impact on asset quality remains manageable
as total exposure to the sector is less than 6%. In addition, these
companies account for less than 3% of total Grade A Central
Business District (CBD) office space leased. Consequently, the
impact on rents is expected to be minimal. Likewise in Malaysia,
the impact on Kuala Lumpur office rents has been contained thus
far since the proportion of space that energy companies occupy
is not overwhelmingly large.
In Australia, the city of Perth is the metro area most influenced
by commodities (inclusive of oil and gas). Demand for office
space is heavily impacted by service industries such as
engineering, information technology (IT), accounting, and legal
that support the resource sector. Perth’s office vacancy rate
increased to 17.2% since the correction from 15.2% during the oil
price boom. The rise is not all oil-related, of course, but oil has
played a significant role.
Lots of supply, and lots of demand
Economic growth in the region is poised to improve in 2017. As
a result, leasing demand across the 30 major cities tracked by
Cushman & Wakefield is expected to reach new highs through
next year. In some markets, that increased demand will coincide
with a wave of new supply, which could lead to higher vacancies
and greater opportunities for tenants.
APAC OIL PRODUCTION
Source: EIA, Cushman & Wakefield Research
APAC GAS PRICE
Source: Australian Institute of Petroleum, National Bureau of Statistics, World Bank,
Cushman & Wakefield Research
APAC ENERGY SECTOR EMPLOYMENT,
ANNUAL GROWTH
Source: Deloitte Access Economics, Department of Statistics, Malaysia, National
Bureau of Statistics, Cushman & Wakefield Research
OIL PRICE VS. APAC RENT CORRELATION
Note: Rental is average rent for Singapore, Mumbai, Jakarta
Source: EIA, Cushman & Wakefield Research
$0
$20
$40
$60
$80
$100
$120
$140
2009 2010 2011 2012 2013 2014 2015 2016
$ per barrel
Australia Malaysia Indonesia
-30
-20
-10
0
10
20
30
40
50
200420052006200720082009201020112012201320142015
Thousand people
Australia Malaysia Indonesia
$0
$1
$2
$3
$4
$5
$6
$7
$0
$20
$40
$60
$80
$100
$120
$140
20072008200920102011 2012201320142015
Q2-2016
$ per sq ft per month
$ per barrel (Brent)
Oil Price Office Rent
4,000
4,200
4,400
4,600
4,800
19951997 199920012003200520072009
2011 20132015
Thousands of bpd