Oil office space is about to see some vacancies. It is almost a repeat of the 1980’s when oil crashed but there are different outcomes. Thankfully the Dallas office market isn’t overbuild like it was in the early eighties. Part of the crash in commercial real estate at that time was caused by overbuilding and the shock of the dramatic downturn in the oil field.
Last week I was canvassing a prominent Dallas office tower looking for new clients and it was shocking when I realized how many small and mid sized companies occupied the building that provided various services to the oil patch. If half of these companies closed their doors there would be a recognizable impact on vacancy rates in the Dallas office market.
Oil Office Space Economic Slowdown
According to the Dallas Federal Reserve their general business activity index fell to -34.6 in January. This is a dramatic drop since December’s -21.6 revised number. Additionally the production index has decrease as well, falling 23 points to -10.2. The Dallas Federal Reserve is expecting slower than normal growth for the Dallas market. Neither of these reports are showing strength in the local Dallas economy and this will eventually trend to Dallas office tenants reducing their office size or unfortunately going out of business and vacating their office space.
Thankfully Dallas is seeing a significant amount of office leasing activity from large users like State Farm, Toyota and Liberty Mutual. The concern is for the sectors of the Dallas economy that service the oil field. Dallas has many large oil businesses. Exxon Mobil is based in Irving and they have recently been reducing their workforce. Obviously these people occupied office space that will no longer be required by Exxon Mobil. Similarly all of the companies that service Exxon Mobil will be going through the same exercise.
Since I represent Dallas office tenants I find that this unfortunate event for oil companies may be good for my clients. The reason is that office rental rates in Dallas are presently at an all time high. As the oil services companies begin to decrease the amount of office space they require this will increase the vacancy rates in some Dallas office buildings and create a more competitive environment for Dallas office landlords.
When the former oil office space remains vacant for a few months some landlords may begin to offer more aggressive obsessions and potentially reduce the base rental rate for their office space. The good news for everyone is that associated with the reduction in demand for office space by oil companies we don’t have millions of new square feet of office space coming online with no tenants signed to lease these buildings.
I think that the next six months we will see a better environment for Dallas office tenants. This will be a good time to position for office lease to take advantage of a softer market. The best choice you can make it to hire a professional office tenant representative to assist you in acquiring the best terms and conditions in your next transaction. Timing is everything and knowledge of the market is important.