Saudi Arabia Oil Turn & The COVID-19 Pandemic

[H-Town Man]

28 minutes ago, mattyt36 said:

 

I'm interested--do CRE professionals really believe this?

I mean the whole idea of (and entirely unironically, mind you) using Exxon's announcement as potential fodder for the Chevron skyscraper when Exxon just returned half a million square feet in The Woodlands in October?  I mean, c'mon.  It's not like they woke up last week and were all, "Hey, now that I think about it, let's move the HQ to Houston."  Needless to say, I don't see the logic.

Sure it'll help the market, but there's plenty of supply, and I don't see any sort of consensus view that this price increase is sustainable and has led to any increase (yet) in E&P spending.

Of course I'm not in either industry so what do I know?

I will only reply concerning the oil price issue, since that is all I commented on. No, there is not an increase (yet) in E&P spending. But buildings are planned a few years out. So with oil at $90, and talk of it going to $100, Skanska has to be saying, "Will the Houston office market be good in 2024 or 2025?" And if they think it will, they start planning the next building.

Remember that in the 2012-2014 boom, the peak oil price was around $105. And that got us about 20 million square feet of new office space.

 

[mattyt36]

1 minute ago, H-Town Man said:

I will only reply concerning the oil price issue, since that is all I commented on. No, there is not an increase (yet) in E&P spending. But buildings are planned a few years out. So with oil at $90, and talk of it going to $100, Skanska has to be saying, "Will the Houston office market be good in 2024 or 2025?" And if they think it will, they start planning the next building.

Remember that in the 2012-2014 boom, the peak oil price was around $105. And that got us about 20 million square feet of new office space.

 

Sure.

But:

(1) Is anyone really saying that the relationship between oil price and commercial space that existed between 2012 and 2014 still exists, COVID and work-from-home aside?

(2) How much vacant Class A space exists today for a company that may needs it for "flex" space during what could very well be a temporary market upswing versus building a new tower that costs hundreds of millions of dollars?

 (3) COVID

[H-Town Man]

23 minutes ago, mattyt36 said:

Sure.

But:

(1) Is anyone really saying that the relationship between oil price and commercial space that existed between 2012 and 2014 still exists, COVID and work-from-home aside?

(2) How much vacant Class A space exists today for a company that may needs it for "flex" space during what could very well be a temporary market upswing versus building a new tower that costs hundreds of millions of dollars?

 (3) COVID

There is always a relationship between oil price and commercial office space in Houston, not just in boom times. This relationship has existed since roughly the time of Spindletop.

Flex space is industrial space. However, there is a lot of vacant office space. But there is always a demand for new office space among deep-pocketed oil industry tenants that is not affected by vacancy of older office space.

[mattyt36]

4 minutes ago, H-Town Man said:

There is always a relationship between oil price and commercial office space in Houston, not just in boom times. This relationship has existed since roughly the time of Spindletop.

Sure.  But things change, don'tcha think?  It's like saying there's a relationship between the price of steel and Pittsburgh's economy . . . until there isn't.  The world isn't exactly bullish on the long-term role of oil as a supply of energy, is it?  Which makes it arguably more difficult to attract capital, no?  So why would you assume historical patterns would play out again, especially with (1) a glut of vacant space; (2) a new trend of working remotely, which, while it may be "pulled back" in the future, probably isn't going to go back to what it was before?

As for flex space, I'm not using jargon.  I'm saying if Chevron needs 500K square feet to accommodate relocated HQ personnel, do you think their first step will be to dust off plans from 2013?  Or do you think they would be more likely to access the available space in the market?  

I'm just interested in the "theory of the case" here . . . as I said, I don't work in commercial real estate.  I never would've expected Skanska to proceed with their development.  Maybe what you're saying is that there is increased likelihood of an oil company signing an anchor tenant lease in a new building simply because the "price is right" and the 1980s era skyscrapers can't match the amenities . . . I've heard that explanation before for BofA, Texas Tower, and Skanska Disco.  But that's a lot different than saying that the market will naturally add a lot more office space simply because the price of oil is $90 today.

[H-Town Man]

14 minutes ago, mattyt36 said:

Sure.  But things change, don'tcha think?  It's like saying there's a relationship between the price of steel and Pittsburgh's economy . . . until there isn't.  The world isn't exactly bullish on the long-term role of oil as a supply of energy, is it?  Which makes it arguably more difficult to attract capital, no?  So why would you assume historical patterns would play out again, especially with (1) a glut of vacant space; (2) a new trend of working remotely, which, while it may be "pulled back" in the future, probably isn't going to go back to what it was before?

As for flex space, I'm not using jargon.  I'm saying if Chevron needs 500K square feet to accommodate relocated HQ personnel, do you think their first step will be to dust off plans from 2013?  Or do you think they would be more likely to access the available space in the market?  

I'm just interested in the "theory of the case" here . . . as I said, I don't work in commercial real estate.  I never would've expected Skanska to proceed with their development.  Maybe what you're saying is that there is increased likelihood of an oil company signing an anchor tenant lease in a new building simply because the "price is right" and the 1980s era skyscrapers can't match the amenities . . . I've heard that explanation before for BofA, Texas Tower, and Skanska Disco.  But that's a lot different than saying that the market will naturally add a lot more office space simply because the price of oil is $90 today.

No, they haven't changed. The price of oil is the major driver of office space occupancy in Houston. There are non-energy tenants such as banks and law firms but they primarily serve the oil industry. Go walk around the Class A buildings in Houston and look at their tenant rosters.

 

[mattyt36]

12 minutes ago, H-Town Man said:

No, they haven't changed. The price of oil is the major driver of office space occupancy in Houston. There are non-energy tenants such as banks and law firms but they primarily serve the oil industry. Go walk around the Class A buildings in Houston and look at their tenant rosters.

 

H-Town, we're talking past each other.  Either that or you're selectively choosing things to respond to.  I'm not sure why you think the fact that the oil and gas industry is a primary driver of commercial real estate demand in Houston is up for debate.  That's absurd.  Again, you either misread what I wrote or you're being deliberately obtuse.  (Equally absurd is the fact that you seem to gloss over the fact that, as an example, the world has changed for Pittsburgh in the 2020s versus what it was in the 1950s and that maybe--just maybe--the same could happen here.)

You've pretty much stated your belief that with oil prices at this level we'll get office development in line with historical patterns.

I questioned whether that was a sound assumption.

You have not come anywhere close to convincing me otherwise thus far, but maybe the consensus view in the industry is more along the lines of your thinking and I'm, as they say, talking out of my arse.

I'd love to hear others' thoughts.  It's fair to say HTM is on the record: "This time, it's not different."

Edited February 4, 2022 by mattyt36

[H-Town Man]

51 minutes ago, mattyt36 said:

H-Town, we're talking past each other.  Either that or you're selectively choosing things to respond to.  I'm not sure why you think the fact that the oil and gas industry is a primary driver of commercial real estate demand in Houston is up for debate.  That's absurd.  Again, you either misread what I wrote or you're being deliberately obtuse.  (Equally absurd is the fact that you seem to gloss over the fact that, as an example, the world has changed for Pittsburgh in the 2020s versus what it was in the 1950s and that maybe--just maybe--the same could happen here.)

You've pretty much stated your belief that with oil prices at this level we'll get office development in line with historical patterns.

I questioned whether that was a sound assumption.

You have not come anywhere close to convincing me otherwise thus far, but maybe the consensus view in the industry is more along the lines of your thinking and I'm, as they say, talking out of my arse.

I'd love to hear others' thoughts.  It's fair to say HTM is on the record: "This time, it's not different."

Lol, here was my original statement:

"$90 oil, folks! I imagine Skanska is already pushing forward on planning for these."

Most people on here took it for what it was: a good-natured expression of optimism. You've subjected it to the level of analysis that a theologian might give to a sentence in the Gospel of John, and gotten bent out of shape over something I didn't say about Pittsburgh. Have a good weekend...

[TheSirDingle]

3 hours ago, H-Town Man said:

$90 oil, folks! I imagine Skanska is already pushing forward on planning for these.

 

This oil boom should allow for a good buffer and boost to our technology and life science industry. Gives Houston more time to prop up (maybe even dominate) other industries without having to go through a massive dry spell like we did in the 80's. 

Looks like a bright future ahead, hoping this coupled with the increased tech and life science investment allows for a massive but continuous boom for the area.

[mattyt36]

35 minutes ago, H-Town Man said:

Lol, here was my original statement:

"$90 oil, folks! I imagine Skanska is already pushing forward on planning for these."

Most people on here took it for what it was: a good-natured expression of optimism. You've subjected it to the level of analysis that a theologian might give to a sentence in the Gospel of John, and gotten bent out of shape over something I didn't say about Pittsburgh. Have a good weekend...

Yes.  That was indeed your original statement.  Well done for selectively quoting yourself.  You also had 3 responses after that.  No "Who knows how this will shape out" or "It's just a bit of good natured optimism," or "I sure hope so."

Simple question posed do people think that if oil prices continue on their current trajectory that we would see the same level of construction spurred by the last boom.  Seems like a pretty valid and central question for a forum dedicated to discussing architecture and commercial development in Houston, Texas.

You more or less said yes. Three times over, mind you, bringing into this "good-natured" discussion Spindletop, the fact that "nothing has changed," that a higher oil price is better for the market (ya don't say?) and "Fun fact: Did you know that the anchor tenants for a lot of buildings downtown are energy companies?"  

All this "good natured optimism" aside, you seem to have some very strange aversion to seriously considering the question posed.  I can only assume it's because you think that'd be "giving in." 

But, er, thanks for your invaluable perspective and "1+1=2" insight.  I really learned a lot.

Edited February 4, 2022 by mattyt36

[samagon]

1 hour ago, H-Town Man said:

Lol, here was my original statement:

"$90 oil, folks! I imagine Skanska is already pushing forward on planning for these."

Most people on here took it for what it was: a good-natured expression of optimism. You've subjected it to the level of analysis that a theologian might give to a sentence in the Gospel of John, and gotten bent out of shape over something I didn't say about Pittsburgh. Have a good weekend...

lol, I've only ever blocked 1 person on this forum. you can take a guess who it is. I'm sure readers of the i45 thread are happier as a result.

anywho, the writing is on the wall for the future of oil companies, if they only focus on oil, they have a limited shelf live. as a matter of fact their lack of investment in new wells plays a part in the price trending upwards. the reality is though, when there is money, they spend it, whether it is to find and drill new wells, or other projects, they spend. 

a good chunk of that money goes to other companies to do things as mundane as upgrade software so they can continue to increase efficiency, as a simple example. there are so many services companies attached to helping fortune 500 companies do what they do, and all those other companies have got to work somewhere too.

[BeerNut]

I work O&G on the production side...  Still no concrete plans to return to office full time.  Some divisions have low key said they won't be returning to full time ever and will be switching to a hybrid model in the future.  2020 & 2021 put us way behind on everything...if it could be deferred it was, exploration was non-existent, cap ex on new projects was slow rolled, and money was cut everywhere they could. $100 might be back but it's not like the old days, things are more reserved.  Everyone kinda knows we're on borrowed time, it's not uncommon now for the field hands to tell their kids/friends to not follow in their foot steps.

[samagon]

even before the pandemic we were only going in once a week, at the moment we're still waiting for corporate to ease the mask restrictions. once we don't have to wear a mask sitting at our desks, or can put more than 2 people in a conference room together, then we'll consider going back.

the longer groups of people are working remote, the more time their managers have to learn how to manage remote workforce. the less likely they are to return to a traditional office environment 5 days a week.

oil at $100 today may not be what oil at $100 was in the past, but it's sure better than oil at $40. people aren't shooting money out of money guns and whoever can grab it gets a piece, but they are spending, it's just they are counting every bill as they place it delicately (lovingly even) in your hand.

[august948]

8 minutes ago, samagon said:

even before the pandemic we were only going in once a week, at the moment we're still waiting for corporate to ease the mask restrictions. once we don't have to wear a mask sitting at our desks, or can put more than 2 people in a conference room together, then we'll consider going back.

the longer groups of people are working remote, the more time their managers have to learn how to manage remote workforce. the less likely they are to return to a traditional office environment 5 days a week.

oil at $100 today may not be what oil at $100 was in the past, but it's sure better than oil at $40. people aren't shooting money out of money guns and whoever can grab it gets a piece, but they are spending, it's just they are counting every bill as they place it delicately (lovingly even) in your hand.

The company I work for (not O&G) had started consolidating offices before covid and has kept on going since.  I've been working remote since the mid-aught's and have seen some managers over the years who were nervous about subordinates working remotely, but what I'm seeing is that most, even the higher ups, seem to like working remotely now.  Once the upper management embraces remote work, there's a permanent sea-change.

What I'm curious about, and have no insight on, is how this is affecting and will affect downtown.  How's the current space utilization?  Has the downtown workforce recovered or is it still lower than before?

[samagon]

my company has a half of a floor downtown, but it has been vacant for the most part since the pandemic started. 

my best guess is that there's a lot of companies out there like mine, on the days I do go into the office the garage is more than half empty at 9am, where it was mostly full at that time pre covid.

long term, is my company going to renew when it comes to it? will they decide sooner to sublease? this is a question I think a lot have on their mind. 

I think that the downtown office market will still be prosperous, maybe not as valuable, but where companies decide to move out of downtown, others will move in, or the footprint companies keep will be smaller, or more flexible, or even shared with other tenants. prices may come down, and amenities may have to go up, but one the other side of this pandemic downtown office market should still be there.

I haven't read anything more than the headline on this, but it looks juicy:

https://www.cnbc.com/2022/02/04/tech-companies-acknowledge-rejecting-remote-work-could-cost-them-talent.html

an interesting (and timely) article regarding oil:

https://oilprice.com/Energy/Crude-Oil/Big-Oil-Isnt-Losing-Any-Sleep-Over-The-EV-Revolution.html

I then went on the hunt for oil demand, and found this:

https://www.statista.com/statistics/271823/daily-global-crude-oil-demand-since-2006/

 

Edited February 7, 2022 by samagon

[BeerNut]

Oil prices are up but I doubt we'll be seeing any kind of boom in Houston.  I feel this is more of a blip than anything sustainable.  What's everyone else's thought?

[BlindTiger]

52 minutes ago, BeerNut said:

Oil prices are up but I doubt we'll be seeing any kind of boom in Houston.  I feel this is more of a blip than anything sustainable.  What's everyone else's thought?

I've been wondering the same thing.  Even if it doesn't translate directly into the commercial office market, what are the expectations for the single family housing market.  Assuming this price spike translates at least somewhat to a little more money in people's pockets, I would expect to see continued or increased tightness in the SFH market.

[august948]

1 hour ago, BeerNut said:

Oil prices are up but I doubt we'll be seeing any kind of boom in Houston.  I feel this is more of a blip than anything sustainable.  What's everyone else's thought?

Traders Are Now Betting On $200 Oil By The End Of The Month

Speculation is that it will still be in high $100's at the end of the year.

[BeerNut]

3 minutes ago, august948 said:

Traders Are Now Betting On $200 Oil By The End Of The Month

Speculation is that it will still be in high $100's at the end of the year.

Yeah not sure how that will translate into worker and upstream confidence... Several people I know said they're done with O&G after getting laid off during the start of the pandemic.