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The impact of falling oil prices on commercial real estate

The price of gasoline is higher in California than it is in most other states, but it has still fallen sharply in recent years due to collapsing oil prices. A barrel of oil sold for $107 in June 2014, but that figure had plunged to just $26 by early 2016. While this may have been greeted warmly by American consumers, it has created some problems for commercial real estate developers and landlords in regions that rely heavily on the energy sector to provide jobs and occupy office space.

The crash in oil prices has cost about 217,000 American energy workers their jobs according to a study from the University of Houston, and corporate downsizing has hit the commercial real estate markets hard in areas like Fort Worth, Houston and Dallas. The investment management company Jones Lang LaSalle reports that 11 million square feet of office space in Houston is currently unoccupied, and that figure looks set to grow in the coming year as buildings that broke ground during the oil boom near completion.

However, this has not had much of an impact on the bottom lines of commercial landlords. A senior JLL executive says that robust growth in sectors like technology and health care have picked up much of the slack, and he points out that many energy companies often either honored their leases or renegotiated them rather than reneging. As a result, the biggest financial setback suffered by commercial real estate landlords has often been a loss of parking revenue.

One of the best ways to avoid setbacks caused by unexpected economic developments is to complete commercial real estate projects quickly, and attorneys with experience in this area could help developers to avoid unnecessary delays by addressing land use, zoning and permit issues in a proactive way. Attorneys may also help commercial landlords to retain cash-strapped tenants by revising the terms of their lease agreements.

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