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CUSHMAN & WAKEFIELD OCCUPIER RESEARCH

Oil: The Commodity We Love to Hate

2 / Oil: The Commodity We Love to Hate

AUTHORS

Kevin ThorpeChief Economist, Global Head of Research+1 202 266 [email protected]

Shaun BrodieHead of China Strategy Research+86 21 2208 [email protected]

Rebecca RockeyEconomist, Head of Forecasting, Americas+1 212 841 [email protected]

Kenneth McCarthyPrincipal Economist, Applied Research Lead, Americas +1 212 698 [email protected]

Sophy MoffatHead of Global Occupier Insight, EMEA+44 (0) 203 296 [email protected]

Sigrid ZialcitaManaging Director, Research & Investment Strategy, APAC+65 6232 [email protected]

Stuart BarronNational Director of Research, Canada+1 416 359 [email protected]

Jose Luis RubiMarket Research Manager, Mexico+52 (55) 8525 [email protected]

Cushman & Wakefield / 3

TABLE OF CONTENTS

Executive Summary ...................................................................................................................4

Key Takeaways .............................................................................................................................5

Global Overview ..........................................................................................................................6

• United States ........................................................................................................................12

• Canada ...................................................................................................................................16

• Latin America .....................................................................................................................20

• EMEA .....................................................................................................................................24

• APAC ......................................................................................................................................28

• Greater China ......................................................................................................................32


EXECUTIVE SUMMARY

Global demand for crude oil has generally kept pace with supply for the better part of the last 35 years. There have been various times, such as the oil glut of the 1980s

and the period following the Gulf War, where a supply-demand imbalance occurred, but in general, the world has efficiently produced and consumed oil. That all changed in 2008. Advances in oil and gas production technology — coming mainly from a new combination of horizontal drilling and hydraulic fracturing — brought on a “shale revolution” led by the U.S. that has dramatically altered the supply dynamics in the oil and gas industries. Armed with these new techniques, the U.S. nearly doubled its production of crude oil, from 5 million barrels per day (bpd) in 2008 to 9.4 million bpd in 2015. OPEC and other energy producers rose to meet this challenge, and the fight for market share was on.

Initially, even with the new supply coming online, a rebounding global economy (post-2008 financial crisis) kept global demand for oil on pace with global supply. But with oil prices sitting comfortably at over $100 per barrel from 2011-2013, profits grew, by 27.9% during that short timeframe alone, which brought even more capital investment into the energy sector. Finally, in mid-2014, multiple years of adding new supply combined with a weakening global economic outlook caught commodities markets

by surprise. That year, global oil supply exceeded global demand by 900,000 bpd. Annualized, this meant that the world produced 328.5 million barrels of oil that it could not consume that year - a trend that has continued. The global oil glut ultimately triggered a massive price correction, with Brent Crude falling from its 2014 peak of $115.19 per barrel (in the second quarter) to $26.01 in the first quarter of 2016. Although by mid-2016 supply was showing signs of adjusting to the weaker price, the general consensus is that oil prices will remain low for years.

The oil price shock has had a profound impact on global office markets. While the positives from lower oil prices outweigh the negatives in terms of impact on global economic growth, the effects on the office market are more of a mixed bag. Most energy-producing office markets have seen economic slowing and lower occupancy levels, while stronger consumer spending has boosted occupancy virtually everywhere else. Thus, for occupiers, the prolonged oil price rebalancing will create cost saving opportunities in some markets, but rental pressure in others.

In this report we assess how each of the world’s major energy cities are performing during this challenging time and provide insights about the office sector fundamentals going forward.


KEY TAKEAWAYS• The shale revolution has introduced a supply

dynamic that will likely result in a lower long-term equilibrium price for oil.

• Baring a production freeze or unforeseen event, oil prices are expected to remain below $60 per barrel through 2017, and most forecast below $70 through 2020.

• The impact of a protracted low oil price scenario is mixed: energy-producing regions struggle while consumers and non-energy producing markets benefit.

• Not all energy-producing markets are created equal. While certain office markets, such as Moscow, Aberdeen, Calgary, and Houston have faced significant headwinds due to the oil shock, others are holding up well, and some are even thriving.

• For occupiers, the prolonged oil price rebalancing

will create lease negotiation leverage and cost saving opportunities in some markets, but rental pressure in others.

• With oil prices remaining low, occupiers in many markets will benefit from lower office build-out costs and lower space energy costs.

• The window of opportunity will not remain open for occupiers forever, however. Many energy cities have strong long-term fundamentals, and the energy sector will ultimately recover.


OIL—WHY DO OCCUPIERS EVEN CARE?Low oil prices — Some positives, but also some negativesLow oil prices impact office occupiers in a number of ways. The most significant impact is through the channel of increased consumer spending. In the U.S., for example, every one penny decline in gas prices typically boosts aggregated consumer spending by $1 billion over the course of the year. This boost from the consumer typically leads to stronger business profits, which creates jobs and ultimately to increased demand for office space. Since oil prices began falling in the middle of 2014, the world economy has created 32 million net new jobs, seen demand for office space increase by 18%, and watched vacancy rates decline 50-100 basis points, depending on the region. Many other factors impact employment and the office sector, but the decline in costs attributable to lower oil prices certainly has not hurt non-energy companies. This, of course, is a double-edged sword for occupiers. Most occupiers benefit from the increases in business profits related to lower oil prices, but they also face higher real estate costs related to tighter office markets.

Oil also plays a major role in office space construction costs: oil both fuels the transportation of raw materials (steel, concrete, lumbar, glass, etc.) used in new construction and is a direct ingredient in construction products, such as roofing and carpets. Thus, when oil prices go down, the hard costs needed to build a building or fit-out space also decrease, or at least are kept lower. Likewise, energy is also one of the greatest costs in operating a building. According to the Building Owners and Managers Association (BOMA), on average, building owners spend 22% of their operating costs on energy and water. Thus, when oil prices go down, lighting and HVAC costs go down. Depending on the structure of the lease, some occupiers could benefit from these cost savings.

Some occupiers also work in local markets where economic growth is driven primarily by the production of oil. In these oil-centric markets, when oil prices boom, oil company profits soar, city-level economies thrive, incomes rise, and job growth and office absorption increase. When oil prices fall, these markets typically struggle — which translates to opportunities for occupiers.

Oil-centric cities—Some hit hard, others show resilienceOverall, the plunge in oil prices has been a net negative on the world’s largest energy-producing markets. As a group, these markets are experiencing slower economic growth, slower job creation, and weaker office sector fundamentals. However, the impact varies greatly from one city to the next. Thus far, markets hardest hit by the oil shock include Moscow, Aberdeen, Calgary, and Houston. But even within these four markets are significant differences with respect to each one’s health. Moscow, for example, has fallen into a deep recession, with 117,500 jobs lost and office rents a third lower since oil prices began to descend. In comparison, Houston’s economy has slowed, but is also proving to be far more resilient. Midway through 2016, Houston was still creating jobs and actually absorbing office space (337,000 square feet (sq ft) year-to-date). Part of the reason Houston is holding up reasonably well is that the local economy has diversified greatly over the years, with more economic contributions coming from non-energy sectors (e.g. education, healthcare, retail, professional business services). During the last major oil downturn, in the 1980s, the oil and gas sector employed nearly two-thirds of all the people who worked in Houston (including upstream and downstream related industries). As the oil price correction hit this time around, that number was closer to 17%.

GLOBAL OVERVIEW


STRONG RENT GROWTH IN MOST NON OIL-CENTRIC OFFICE MARKETSYr/Yr % Chg. (Q2 16/Q2 15)

Source: Cushman & Wakefield Research

16%

12%

9% 9% 9% 9% 9% 8%

7%6% 6% 5% 5% 5%

4%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Yr/

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% c

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GLOBAL OVERVIEW

Outside of these hardest hit markets, most of the energy cities have more diverse economies, and are therefore performing much like other healthy office markets around the world. For example, Denver, CO is an oil-centric city but it also has many thriving industries (tech, tourism, professional services). As a result, Denver has seen its vacancy rate improve from 12.8% mid-2014 (when oil prices were booming) to 11.4% mid-2016 (post oil price correction). Since mid-2014, the Denver office market has absorbed 3.6 million square feet (msf) and has seen rents grow by 13%.

LATEST INDUSTRY DEVELOPMENTSOil price—Finally showing signs of firmingOver the course of the first half of 2016, Brent crude saw its price rebound from a low of $26 per barrel in January to over $52 per barrel at the beginning of June. Since then, oil prices have bumped around and, as of this writing in September, were currently hovering around $45 per barrel.

The oil market continues to be subjected to abundant supply, an excess of refined products, and a waning outlook for the global economy. Recent crude build in the U.S. and production resumption in Canada and Nigeria means the re-balancing of global oil market supply/demand is now a more distant prospect. In July, OPEC production reached 33.2 million bpd from a revised 33.3 million bpd in June. In addition, following an agreement between the UN-backed government and an armed force, Libya said its state oil company would reopen oil ports in the country, and that it would act quickly to resume exports. Libya is looking to increase exports to 900,000 bpd by the close of 2016. Finally, drillers have continued to add oil rigs in the U.S. As of August 12, U.S. drillers had 481 oil rigs in production, up 17 from the prior count but still down 403 from the same time last year.

Note: Production includes OPEC and non OPED countries. Consumption includes OECD countries.

*Crude includes lease condensates.

Source: EIA, Cushman & Wakefield Research

GLOBAL OIL PRODUCTION AND CONSUMPTION BY REGION (2015/2016)

Crude Oil Production*(Million bpd)

Petroleum Consumption(Million bpd)

49.49 (2015)EMEA

50.01 (2016)

15.04 (2015)UNITED STATES

14.50 (2016)

10.94 (2015)

10.64 (2016)LATIN AMERICA

4.72 (2015)

4.61 (2016)CANADA

4.51 (2015)

4.57 (2016)GREATER CHINA

4.45 (2015)

4.52 (2016)APAC

EMEA31.44 (2015)

31.78 (2016)

APAC20.12 (2015)

20.69 (2016)

UNITED STATES19.39 (2015)

19.56 (2016)

GREATER CHINA11.28 (2015)

11.68 (2016)

LATIN AMERICA9.27 (2015)

9.26 (2016)

CANADA2.34 (2015)

2.31 (2016)

GLOBAL OIL PRODUCTION AND CONSUMPTION 2010 - 2020

Source: EIA, IEA, Cushman & Wakefield Research

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

80

82

84

86

88

90

92

94

96

98

100

102

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Su

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s/D

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Mill

ion

(b

pd

)

Production Consumption Surplus/Deficit

Forecast


Oil prices will remain lowAs oil production has recently increased, demand growth has weakened slightly. In Europe, Brexit dampened the outlook for economic growth in the UK, while in Asia, Japanese manufacturing activity contracted in July, with new export orders falling by the sharpest amount in more than three and a half years. Moreover, China’s economy is slowing; however, with policy loosening, growth should remain stable in the near-term. Along with steady demand from the rest of Asia and other emerging markets, this stability should buoy global demand for oil for the rest of 2016. Nevertheless, according to the EIA, global supply of oil will continue to exceed demand in 2016 and 2017, before evening out in 2018. Although oil price forecasts vary, in general they are expected to remain below $60 per barrel through 2017, and most forecast below $70 through 2020.

Profitability to improve but remain lowLow oil prices, coupled with stable extraction costs, transportation costs, and taxes on profits have resulted in the erosion of net profits for oil companies since the $100 per barrel oil price high in July 2014. As prices slowly improve, profitability should also improve, but remain low. On a country basis, the UK currently is the most expensive place to produce oil. This is due to the offshore, deep-water location of most wells as well as an aging infrastructure requiring much maintenance. Saudi Arabia, however, remains the most inexpensive place to extricate crude oil because fields are sizable, on land, and lie close to the surface. The breakeven point for most oil production globally is roughly $50 per barrel, so as oil prices rise to this level — as we are seeing now — drillers begin to return, which boosts supply again and places downward pressure on pricing.

GLOBAL OIL PRICE

Source: EIA, EIU, Chicago Mercantile Exchange, Haver Analytics, Cushman & Wakefield Research

OIL PRODUCTION COST & BREAKEVEN POINTAugust 2016, $ Per Barrel

Source: The Wall Street Journal, Cushman & Wakefield Research

$0 $5 $10 $15 $20 $25 $30 $35 $40 $45 $50 $55 $60

Saudi Arabia

Iran

Iraq

Russia

Indonesia

U.S. non-shale

Norway

U.S. shale

Canada

Venezuela

Nigeria

Brazil

U.K.

Brent Crude ($49.23 per barrel – 8/17/16)

LossProfit

$0

$20

$40

$60

$80

$100

$120

$140

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

$ p

er b

arre

l

Brent Crude WTI

Forecast


WHERE ARE THE ENERGY-CENTRIC MARKETS?

Top 100 companies—Lion’s share located in the USPrior to the recent collapse in oil prices, increased profitability encouraged an oil-drilling fest in the U.S., particularly shale drilling in areas such as Texas and North Dakota. This resulted in a more energy independent country set to surpass Saudi Arabia as the top country producer globally. By the end of 2015, the outright largest global oil production company was Saudi Aramco, followed by Gazprom and National Iranian Oil. Of the top 100 global energy companies, 39 firms are headquartered in the U.S. Of these, 10 are in Houston, including Phillip 66, ConocoPhillips, and Enterprise Products Partners. Outside the U.S., Moscow, London, Beijing, Singapore, Mumbai, Kuala Lumpur, Jakarta, Perth, Caracas, Bogotá, and Rio de Janeiro are other examples of global cities that are centers for oil company headquarters.

Two city subcategories—Energy-dependent and corporate hubsOur select group of energy-centric cities — which are home to listed and/or state-owned energy company headquarters — can be divided into two subcategories: energy-dependent cities and corporate hub cities. The energy-dependent cities in our study are very reliant on the oil and gas industry to drive their economies and property sectors, as determined by the contribution of energy-related sectors to the broader local economy. Example cities include Aberdeen, Houston, Calgary, Caracas, Dalian, and Perth. Corporate hub cities, which are favored locations for energy company headquarters, are noticeably less reliant on the oil sector. In our study, these cities include Denver, London, Mexico City, Beijing, and Singapore.

GLOBAL OVERVIEW

ENERGY-DEPENDENT CITIES/CORPORATE HUB CITIESCity Level Energy GDP Quotient (2015)

Note 1: Energy includes mining, quarrying and utilities

Note 2: The city level quotient evaluates city energy GDP to national norms, according to the following calculation: (City energy GDP/City total GDP) / (Country energy GDP/Country total GDP)

Source: Oxford Economics, National Bureau of Statistics (China), Office for National Statistics (UK), Cushman & Wakefield Research

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8

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12

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Energy Dependent Cities Corporate Hub Cities


Exxon Mobil Corp.Chevron Corp.Phillips 66ConocoPhillipsValero Energy Corp. Marathon Petroleum Corp.Enterprise Products Partners LPEOG Resources, Inc. NextEra Energy, Inc.Southern Co.Edison InternationalExelon Corp.PG&E Corp.Entergy Corp.American Electric Power Co, Inc. Duke Energy Corp. Tesoro Corp.Public Service Enterprise Group Inc.Devon Energy Corp.Hess Corp.

Chesapeake Energy Corp. Williams Companies, Inc. PPL Corp.Plains All American Pipeline, LP Consolidated Edison, Inc.Sempra EnergyDTE Energy Co.Dominion Resources Inc. Spectra Energy Corp.Xcel Energy Inc.Noble Energy Inc.Murphy Oil Corp. Calpine Corp. Kinder Morgan, Inc.Energy Transfer Equity, LPPioneer Natural Resources Co.The AES Corp. Marathon Oil Corp.Continental Resources, Inc.

CNOOC LtdPetroChina Co., LtdChina Shenhua Energy Co., LtdChina Petroleum & Chemical Corp. Huaneng Power International, Inc.

CLP Holdings LtdChina Resources Power Holdings Co., LtdZhejiang Zheneng Electric Power Co., LtdHuadian Power International Corp., LtdGD Power Development Co., Ltd

United States

China

Source: Platts Top 250 Global Energy 2015, Cushman & Wakefield Research

TOP 100 LISTED ENERGY COMPANIES

Canada Canadian Natural Resources LtdSuncor Energy Inc. Ecana Corp. Husky Energy Inc.

Enbridge Inc.TransCanada Corp.Cenovus Energy Inc.

OJSC Rosneft Oil Co.OJSC SurgutneftegasOJSC LUKOIL Oil Co.

OAO TatneftOil Transporting JSC TransneftOJSC Gazprom

Russia

Reliance Industries LtdOil & Natural Gas Corp. Coal India Ltd

NTPC LtdBharat Petroleum LtdIndian Oil Corp. Ltd

India

UK National Grid plcSSE plc

BP p.l.c

Respol,SA Iberdrola, SA

Gas Natural SDG SA Spain

Italy Eni SpAEnel SpA

Snam SpA

France Electricite de France SA Total SA

Engie SA

Poland Polska Grupa Energetyczna SA Polskie Gornictwo Naftowe | Gazownictwo

Tokyo Electric Power Co., Inc. Tokyo Gas Co Ltd Japan

Argentina: YPF SAAustralia: Woodside Petroleum LtdBrazil: Companhia Energetica de Minas Gerais SAChile: Empresas Copec SAColombia: Ecopetrol SACzech Republic: CEZ, a.s.Finland: Fortum OyjGermany: RWE AG

Netherlands: Royal Dutch Shell plc Malaysia: Tenaga Nasional Berhad ComboNorway: Statoil ASA Portugal: EDP- Energias de Portugal , SA Saudi Arabia: Saudi Electricity Co.South Africa: Sasol LtdSouth Korea: Korea Electric Power Corp. Thailand: PTT Plc

Other


Houston

Fort Worth

16%

Pittsburgh

6%

17%

New Orleans

8.5%

Total Employment

Growth Ranking (# Jobs)*

Total Employment

Growth Ranking

(% Change)*

Vacancy Rate Ranking

(65 top cities)Q2 14

Rent Growth Ranking

(65 top cities)Q1 09 - Q2 14

Denver 13 27 25 29

Fort Worth 23 41 28 12

Houston 2 16 20 19

New Orleans 48 126 14 16

North Dakota 25 4 2 13

Oklahoma City 36 63 26 25

Pittsburgh 41 227 5 20

San Antonio 22 24 39 15

Tulsa 69 180 45 10

Top Energy Markets - Oil Price Boom

Top Energy Markets - Oil Price Correction

13.9% of global oil production comes from the United States.

OIL PRICES: WHERE THEY WERE

San Antonio

5%

Oklahoma City

13%

Tulsa

14%Denver

6%

Size of bubble represents energy sector contribution to total city GDP

Source: Oxford Economics, BP, Moody’s Analytics, Cushman & Wakefield Research

Total Employment

Growth Ranking(# Jobs)*

Total Employment

Growth Ranking

(% Change)*



Rent Growth Ranking

(65 top cities)Q2 14 - Q2 16

Denver 12 39 24 16

Fort Worth 38 203 28 30

Houston 84 315 57 10

New Orleans 132 286 19 49

North Dakota 390 386 3 34

Oklahoma City 139 298 53 27

Pittsburgh 387 347 12 65

San Antonio 33 33 45 38

Tulsa 386 362 58 62

*(390 Cities) 06/30/15-06/30/16

Source: U.S. Bureau of Labor Statistics, CoStar, Cushman & Wakefield ResearchSource: EIA, Cushman & Wakefield Research

UNITED STATES

North Dakota

13.3%

OIL PRICES: WHERE THEY ARE

*(390 Cities) 2009-2014

$0

$20

$40

$60

$80

$100

$120

Aug

-14

Oct

-14

Dec

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Feb

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Ap

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Jun-

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Aug

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Oct

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Ap

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Jun-

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Aug

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$ p

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$120

Jan

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Jul-

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Dec

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May

-12

Oct

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Mar

-13

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Jan

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Jun-

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$ p

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The world’s largest consumer The United States has been the world’s largest oil consumer for decades. It currently consumes roughly 19.4 million bpd. As recently as 2008, two-thirds of that demand was met by imports. However, since then, the U.S. has seen a production surge as hydraulic fracturing technology allowed producers to tap into shale oil reserves and nearly double domestic output. While recent oil price declines have led to lower output, U.S. oil production remains near record highs.

Clustered in Southwest The U.S. oil industry is concentrated in the Southwest part of the country — along the Gulf of Mexico coast from Louisiana to Texas, and north from Texas into Oklahoma. As these regions became centers for production, imports and refining, cities in the area — led by Houston, Texas and Oklahoma City, Oklahoma — became the major oil centers in the U.S. The energy industry accounts for between 13% and 17% of all economic activity in each of these cities. In addition, the shale oil revolution has generated oil booms in areas near large shale deposits, such as Denver, North Dakota and Pittsburgh.

Boom times during price surge; slowdown since 2014 During the production surge of 2009 to 2014, U.S. oil centers were among the best-performing office markets in the nation. In five of the top ten job growth cities in the nation in that timeframe, energy played a major role, and those markets experienced strong absorption of space, declining vacancy rates, and rising rents. They also saw building booms — by mid-2014, buildings under construction in those U.S. oil centers accounted for 2.8% of inventory, double the 1.4% national average. In Houston, new construction accounted for more than 5% of U.S. inventory. But as oil prices began to fall, these markets felt the impact as that new, “production-surge” construction was delivered and demand slowed. Today, oil-centric markets in the U.S. register some of the highest vacancy rates in the nation. Office markets in energy-centric metros with more diverse economies — Dallas and Denver — have held up much better.

U.S. OIL PRODUCTION

Source EIA, Cushman & Wakefield Research

U.S. NATURAL GAS PRICE

Source: International Monetary Fund, Cushman & Wakefield Research

RIG COUNT

Source: Baker Hughes, Cushman & Wakefield Research

OIL PRICE VS. OIL CITY VACANCY RATIO

Note: Vacancy Ratio is U.S. vacancy/oil city vacancy. A rising ratio means that oil cities are doing better than the U.S. as a whole


75%

80%

85%

90%

95%

100%

105%

110%

115%

$0

$20

$40

$60

$80

$100

$120

$140

200

5

200

6

200

7

200

8

200

9

2010

2011

2012

2013

2014

2015

2016

$ p

er b

arre

l (B

rent

)

Oil Price Rent Ratio: US/Oil Cities

3,500

4,500

5,500

6,500

7,500

8,500

9,500

198

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198

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500

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DENVER HOUSTONFORT WORTH NEW ORLEANS

MARKETS

MARKET INDICATORS

Office Absorption

Landlord/Tenant (Q2 16) ( 5 year average availability ratio)

Pipeline (Completions - Q2 16 - Q4 18)

Rent Growth Forecast (Q2 16 - Q2 17)

Rent Growth (Q2 15 - Q2 16)

Office Vacancy

Job Growth

0%

5%

10%

15%

20%

0%

5%

10%

15%

20%

0%

5%

10%

15%

20%

0%

5%

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5%10%

15%20%25%30%

5%10%

15%20%25%30%

5%10%

15%20%25%30%

5%10%

Source: Moody’s, U.S. Bureau of Labor Statistics, Cushman & Wakefield Research

773,109 sq ft1,393,114 sq ft

9,127,548 sq ft

31,308 sq ft

UNITED STATES

5%

10%

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MARKETS

OKLAHOMA CITY PITTSBURGH TULSA

Office Absorption





Office Vacancy

Job Growth

0%

5%

10%

15%

20%

0%

5%

10%

15%

20%

0%

5%

10%

15%

20%

15%20%25%30%

5%10%

15%20%25%30%

5%10%

15%20%25%30%

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68,000 sq ft 78,992 sq ft

-6.1% -2.9%

2,128,343 sq ft

NORTH DAKOTA

0%

5%

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15%

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15%20%25%30%

5%10%

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-0.1

0.0

0.1

0.2

Mill

ion

sq f

t

-1.0

-0.5

0.0

0.5

Mill

ion

sq f

t

0.0

0.5

1.0

1.5

Mill

ion

sq f

t

-1.5-1.0-0.50.00.51.0

Mill

ion

sq f

t


Job Growth Ranking*


(12 Cities)Q2 14

Rent Growth Ranking

(12 Cities)Q1 09 - Q2 14

Calgary 3 2 2

Edmonton 2 7 12

St. John’s 1 1 1

CANADA



4.8% of global oil production comes from Canada.

Size of bubble represents energy sector contribution to total city GDPSource: EIA, BP, Statistics Canada, Moody’s Analytics, Cushman & Wakefield Research

Job Growth Ranking*


(14 Cities)Q2 16

Rent Growth Ranking

(14 Cities)Q2 14 - Q2 16

Calgary 8 12 14

Edmonton 4 7 10

St. John’s 11 10 9

* (13 Cities) 01/01/14-12/31/15

Source: Statistics Canada, Cushman & Wakefield Research


St. John’s

18.8%

Edmonton

14.9%

26.6%

Calgary



* (12 Cities) 01/01/09-12/31/13

$0

$20

$40

$60

$80

$100

$120

Aug

-14

Oct

-14

Dec

-14

Feb

-15

Ap

r-15

Jun-

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Aug

-15

Oct

-15

Dec

-15

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Ap

r-16

Jun-

16

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-16

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er b

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rent

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Jan

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09

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$ p

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Energy-producing provinces feel the pinchCanada’s mighty resource sector accounts for almost one-fifth of the country’s GDP and about 1.8 million jobs. Ranked fifth in the world in oil production, Canada produces 3.9 million bpd, 97% of which is from Alberta, Manitoba, and Newfoundland and Labrador. Alberta is the leading producer, responsible for almost 80% of the country’s total output. Not surprisingly, the oil shock and sustained low prices have weighed heavily on the most exposed office markets of Calgary, Edmonton, and St. John’s.

Taking a heavy toll on Alberta Calgary is home to most of Canada’s heavyweight oil and gas companies, including EnCana, Husky Energy, and Suncor Energy. Since late 2014, roughly 46,000 jobs have been eliminated in Alberta due to the oil shock, and Calgary’s CBD office sector has seen 4.3 msf of space returned to the market. Prior to the oil price bust, Calgary boasted the highest 15-year CBD office growth rate in the country, with 750,000 sq ft absorbed per year. With 2.7 msf of new developments underway, the availability rate in Calgary’s premium class A CBD buildings is projected to reach around 27.5% by late 2017.

While Edmonton’s CBD office market has the advantage of few significant oil tenancies, energy continues to be a key driver of the city’s economy. Government is a major occupier of space, and both the federal and provincial levels have been grappling with serious shortfalls in oil and gas tax revenues since late 2014. Against weak demand and 1.7 msf of new development in the CBD, availability is projected to register 21.2% by Q4 2018.

St. John’s—Weathering the storm Three billion barrels of oil and 11 trillion cubic feet of natural gas have been discovered in Newfoundland and Labrador, and 200,000 bpd is currently being produced from offshore projects Hibernia, Terra Nova, and White Rose, with Hebron under development. The economic contraction that impacted the St. John’s office market in 2015 was due to both a 20% drop in oil production and lower oil prices. While its CBD office market has seen a huge slowdown in momentum, most energy tenants are service-related, and a large proportion of them have recently renewed their space commitments — a event which will stabilize this market. The desire for quality space has kept Class A availability at 8.8%, although space returning to market will push it to 19.8% by Q4 2017.

CANADIAN OIL PRODUCTION

Source: National Energy Board, Cushman & Wakefield Research

CANADIAN GAS PRICE

Source: National Energy Board, Cushman & Wakefield Research

CANADIAN EMPLOYMENT - OIL, GAS, & PIPELINE SECTORS

Source: Statistics Canada, Cushman & Wakefield Research

OIL PRICE VS. CANADIAN RENT CORRELATION


$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

Q2 13 Q4 13 Q2 14 Q4 14 Q2 15 Q4 15 Q2 16

$ C

DN

per

lite

r

0

50

100

150

200

200

5

200

6

200

7

200

8

200

9

2010

2011

2012

2013

2014

2015

Tho

usan

d p

eop

le

$14

$15

$16

$17

$18

$19

$20

$0$20$40$60$80

$100$120$140

200

7

200

8

200

9

2010

2011

2012

2013

2014

2015

Q2-

2016

sq f

t p

er y

r

$ p

er b

arre

l (B

rent

)

Oil Price Overall Office Rent

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

200

0

200

2

200

4

200

6

200

8

2010

2012

2014

May

-16

Mill

ions

of

bp

d


CALGARY EDMONTON ST. JOHN’S

MARKETS

MARKET INDICATORS

CBD Class A Office Absorption





CBD Class A Office Vacancy

Job Growth

0%

5%

10%

15%

20%

0%

5%

10%

15%

20%

0%

5%

10%

15%

20%

15%20%25%30%

5%10%

15%20%25%30%

5%10%

15%20%25%30%

5%10%

Source: Oxford Economics, Moody’s, City Statistics Bureau, Cushman and Wakefield Research

4,355,524 sq ft1,897,047 sq ft

251,600 sq ft

CANADA

-28.6%

-5.8% -1.7%

0%

10%

20%

30%

0%

10%

20%

30%

0%5%

10%15%

20%

-20

0

20

Tho

usan

d p

eop

le

0

10

20T

hous

and

peo

ple

-0.6-0.30.00.30.6

Tho

usan

d p

eop

le

-1.5-1.0-0.50.00.51.0

Mill

ion

sq f

tt

-200-100

0100200300

Tho

usan

d s

q f

t

-100

0

100

200

300

Tho

usan

d s

q f

t


MARKETS

CBD Class A Office Absorption





CBD Class A Office Vacancy

Job Growth


36.5%

Employed Population Ranking*

Job Growth Ranking*

Vacancy Rate Ranking (5 cities)

Q2 14

Rent Growth Ranking (5 cities)

Q1 09 - Q2 14

Bogotá 3 2 1 4

Caracas 12 22 2 5

Mexico City 2 17 3 3

São Paulo 1 18 5 2

Rio de Janeiro 5 14 4 1



11.2% of global oil production comes from Latin America. São Paulo

11.5%

Mexico City

5.5%


Source: EIA, BP, National Statistics Bureaus, Cushman & Wakefield Research


Job Growth Ranking*

Vacancy Rate Ranking(5 cities)

Q2 16


Q2 14 - Q2 16

Bogotá 1 8 1 1

Caracas 5 6 3 2

Mexico City 18 24 2 3

São Paulo 26 26 4 5

Rio de Janeiro 27 27 5 4

*(28 Cities) 01/01/14-12/31/14

Source: Oxford Economics, Cushman & Wakefield Research

Bogotá

6.5%

Caracas

Rio de Janeiro

13.3%


LATIN AMERICA



*(28 cities) 01/01/09-12/31/13

$0

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$40

$60

$80

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$120

Aug

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Ap

r-15

Jun-

15

Aug

-15

Oct

-15

Dec

-15

Feb

-16

Ap

r-16

Jun-

16

Aug

-16

$ p

er b

arre

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rent

)

$0

$20

$40

$60

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$120

Jan

-09

Jun-

09

No

v-0

9

Ap

r-10

Sep

-10

Feb

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Jul-

11

Dec

-11

May

-12

Oct

-12

Mar

-13

Aug

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Jan

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Jun-

14

$ p

er b

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)


A diverse set of oil producers Economic growth related to the oil industry has varied across Latin America due to the different political structures and economic conditions in the region’s countries. Between 2006 and 2013, strong growth in the energy sector supported the broader economic growth enjoyed by the top four oil producing countries in Latin America — Brazil, Colombia, Mexico, and Venezuela. Population and economic growth led to increasing demand for oil products in other countries in the region. On the supply side, Brazil and Colombia experienced robust development during the same period, and favorable investment terms from oil companies led to increased production. Note that Mexico and Venezuela are important sources of crude oil for the United States, but their oil industries are government-dominated. Those governments limited the amount of reinvestment into exploration, production, and refining, which eventually resulted in output declines.

Caracas, Mexico City, Bogotá and Rio office markets – Oil influenced Of the top four oil countries in Latin America, Brazil and Colombia have the largest number of foreign companies that own domestic oil assets. In Venezuela, international firms account for only a 35% share of oil leases. Mexico only opened up its government monopoly-led oil industry beginning in 2014. Of the major Latin American oil-centric metro markets, Caracas has an office market that is highly influenced by the oil industry, while office markets in Mexico City and Bogotá are impacted to a lesser degree. São Paulo, a business powerhouse in Brazil, is home to a number of oil-related companies, but the lion’s share of oil firms are based in Rio de Janeiro, which is closer to the country’s largest producing fields.

Oil is not what it used to be, except in Venezuela Currently, Mexico and Brazil have complex and diversified economies with employment growth correlating primarily to manufacturing and services. Mexico City’s employment base is spread across a number of industries other than oil, especially financial services. Rio de Janeiro boasts a sizable oil industry, but São Paulo’s economy is more about manufacturing and the financial services sector. Meanwhile, Bogotá is enjoying strong growth due to macroeconomic stability strong enough to overcome a weaker oil export value. Caracas, however, sits apart as its economy is dominated by oil. The negative impact of low oil prices on this city’s office market has been compounded by the catastrophic mismanagement of the overall economy in Venezuela.

LATIN AMERICA OIL PRODUCTION


LATIN AMERICA GAS PRICE

Note: Price represents the average price for Venezuela, Colombia, Brazil, and Mexico

Source: World Bank, Colombian Oil and Gas Information System, Brazilian National Agency for Oil, Mexican National Oil Company (Pemex), Cushman & Wakefield Research

LATIN AMERICA EMPLOYMENT, ANNUAL GROWTH

Note: Employment figures are the sum of the five tracked oil markets

Source: National Statistics Bureaus, Cushman & Wakefield Research

OIL PRICE VS. LATIN AMERICA RENT CORRELATION

Note: Rental is average rent for the five tracked oil markets in Latin America


Tho

usan

d p

eop

le

-400

-200

0

200

400

600

800

1,000

1,200

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

$0

$10

$20

$30

$40

$0$20$40$60$80

$100$120$140

200

7

200

8

200

9

2010

2011

2012

2013

2014

2015

Q2-

2016 $

per

sq

m p

er m

ont

h

$ p

er b

arre

l (B

rent

)

Oil Price Office Rent

5,500

6,000

6,500

7,000

7,500

8,000

8,500

199

5

199

7

199

9

200

1

200

3

200

5

200

7

200

9

2011

2013

2015

Tho

usan

ds

of

bp

d

$0.30

$0.40

$0.50

$0.60

$0.70

$0.80

$0.90

$1.00

Jan

-09

Oct

-09

Jul-

10

Ap

r-11

Jan

-12

Oct

-12

Jul-

13

Ap

r-14

Jan

-15

Oct

-15

Jul-

16

$ p

er li

ter


BOGOTÁ CARACAS RIO DE JANEIROMEXICO CITY

MARKETS

MARKET INDICATORS

Office Absorption





Office Vacancy

Job Growth

0%

5%

10%

15%

20%

0%

5%

10%

15%

20%

0%

5%

10%

15%

20%

0%

5%

10%

15%

20%

20%30%40%50%

0%10%

20%30%40%50%

0%10%

20%30%40%50%

0%10%

20%30%40%50%

0%10%

Source: National Statistics Bureau, Oxford Economics, Cushman & Wakefield Research

677,302 sq m168,840 sq m

401,177 sq m1,592,563 sq m

LATIN AMERICA

-13.3%-0.8%

0%

10%

20%

30%

40%

0%

10%

20%

30%

0%

10%

20%

30%

0%

20%

40%

60%

050

100150

200250

Th

ou

san

d p

eop

le

0

50

100

150

200

Tho

usan

d s

q m

-80

-40

0

40

Tho

usan

d s

q m

200

300

400

Tho

usan

d s

q m

-80

-40

0

40

80

Tho

usan

d s

q m

-120-60

060

120

Tho

usan

d p

eop

le

-40-20

02040

Tho

usan

d p

eop

le

050

100150

200

Tho

usan

d p

eop

le


SÃO PAULO

MARKETS

Office Absorption





Office Vacancy

Job Growth

0%

5%

10%

15%

20%

20%30%40%50%

0%10%

339,376 sq m

-10.2%

0%

10%

20%

30%

0

50

100

150

200

Tho

usan

d s

q m

-300-150

0150

300

Tho

usan

d p

eop

le



Job Growth Ranking*


(44 cities)Q2 14

Rent Growth Ranking

(44 cities)Q1 09- Q2 14

Aberdeen 142 124 6 13

Hamburg 59 153 8 16

London 3 111 3 2

Marseille 167 191 1 7

Moscow 5 120 37 10

Oslo 119 165 9 4

Rotterdam 249 246 43 21



61% of global oil production comes from EMEA.


Source: EIA, BP, OPEC, Cushman & Wakefield Research


Job Growth Ranking*

Vacancy Rate Ranking(15 top cities)Q2 16

Rent Growth Ranking (44 cities)Q2 14 - Q2 16

Aberdeen 217 210 46 44

Hamburg 92 193 9 16

London 4 130 2 6

Marseille 203 221 1 17

Moscow 279 243 42 46

Oslo 228 234 18 27

Rotterdam 145 189 43 10

*(280 Cities) 2014-2016


Aberdeen

14.1%


Oslo

3.0%

Moscow

3.1%

Marseille

2.8%

London1.1%

Rotterdam

1.6%Hamburg

1.8%

EMEA



*(280 Cities) 2009-2014

$0

$20

$40

$60

$80

$100

$120

Aug

-14

Oct

-14

Dec

-14

Feb

-15

Ap

r-15

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15

Aug

-15

Oct

-15

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-16

Ap

r-16

Jun-

16

Aug

-16

$ p

er b

arre

l (B

rent

)

$0

$20

$40

$60

$80

$100

$120

Jan

-09

Jun-

09

No

v-0

9

Ap

r-10

Sep

-10

Feb

-11

Jul-

11

Dec

-11

May

-12

Oct

-12

Mar

-13

Aug

-13

Jan

-14

Jun-

14

$ p

er b

arre

l (B

rent

)


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


-80

-60

-40

-20

0

20

40

60

200

4

200

5

200

6

200

7

200

8

200

9

2010

2011

2012

2013

2014

2015

Tho

usan

d p

eop

le

0

100

200

300

400

500

600

700

$0

$20

$40

$60

$80

$100

$120

$140

200

7

200

8

200

9

2010

2011

2012

2013

2014

2015

Q2-

2016

GB

P p

er s

q m

per

yea

r

$ p

er b

arre

l (B

rent

)


$0

$2

$4

$6

$8

$10

$12

$1420

09

Q2

2010

Q2

2011

Q2

2012

Q2

2013

Q2

2014

Q2

2015

Q2

2016

Q2

$ p

er m

il. B

TU

s

350,000

370,000

390,000

410,000

430,000

450,000

470,000

490,000

510,000

199

4

199

6

199

8

200

0

200

2

200

4

200

6

200

8

2010

2012

2014

Tho

usan

ds

of

bp

d

2015


ABERDEEN HAMBURG MARSEILLELONDON

MARKETS

MARKET INDICATORS

Office Take-up





Office Vacancy

Job Growth

0%

5%

10%

15%

20%

0%

5%

10%

15%

20%

0%

5%

10%

15%

20%

0%

5%

10%

15%

20%

10%15%20%25%

0%5%

10%15%20%25%

0%5%

10%15%20%25%

0%5%

10%15%20%25%

0%5%

Source: PMA, Oxford Economics, Cushman & Wakefield Research

33,352 sq m

1,651,950 sq m

EMEA

430,982 sq m299,325 sq m

-6.67%

-10

0

10

20

Tho

usan

d p

eop

le

0

10

20T

hous

and

peo

ple

0

100

200

300

Tho

usan

d p

eop

le

0

2

4

Tho

usan

d p

eop

le

0

50

100

Th

ou

san

d s

q m

440470500530560

Th

ou

san

d s

qm

0

500

1,000

1,500

Th

ou

san

d s

q m

60

70

80

90

Th

ou

san

d s

q m

0%10%20%30%

5.0%6.0%7.0%8.0%

0%

5%

10%

0%

2%

4%


MOSCOW

MARKETS

Office Take-up





Office Vacancy

Job Growth

0%

5%

10%

15%

20%

10%15%20%25%

0%5%

OSLO ROTTERDAM

0%

5%

10%

15%

20%

0%

5%

10%

15%

20%

10%15%20%25%

0%5%

10%15%20%25%

0%5%

2,422,832 sq m

385,000 sq m

-30.0%

0 sq m

-200

-100

0

100

Tho

usan

d p

eop

le

-505

1015

Tho

usan

d p

eop

le

-5

0

5

10

Tho

usan

d p

eop

le

0

500

1,000

1,500

Th

ou

san

d s

q m

0

500

1000

Th

ou

san

d s

q m

0

100

200

Th

ou

san

d s

qm

14%16%18%

20%

8.0%

9.0%

10.0%

5%10%15%

20%



Job Growth Ranking*

Vacancy Rate Ranking (5 cities)

Q2 14


Q1 09 - Q2 14

Mumbai 1 5 5 5

Kuala Lumpur 7 1 4 2

Singapore 4 2 1 4

Jakarta 3 6 2 1

Perth 11 4 3 3



4.4% of global oil production comes from APAC


Note: APAC excluding Greater China

Source: EIA, BP, National Statistics Bureaus, Cushman & Wakefield Research

Employed Population Ranking *

Job Growth Ranking*

Vacancy Rate Ranking(5 cities)

Q2 16


Q2 14 - Q2 16

Mumbai 1 1 3 1

Kuala Lumpur 13 7 4 3

Singapore 2 4 1 4

Jakarta 12 3 5 2

Perth 11 11 2 5

*(14 Cities) 01/01/14-12/31/14


Perth

30.1%

APAC

Jakarta

1.2%

Kuala Lumpur

1.5%

Singapore

11.9%Mumbai

7.1%




*(14 Cities) 01/01/09-12/31/13

$0

$20

$40

$60

$80

$100

$120

Aug

-14

Oct

-14

Dec

-14

Feb

-15

Ap

r-15

Jun-

15

Aug

-15

Oct

-15

Dec

-15

Feb

-16

Ap

r-16

Jun-

16

Aug

-16

$ p

er b

arre

l (B

rent

)

$0

$20

$40

$60

$80

$100

$120

Jan

-09

Jun-

09

No

v-0

9

Ap

r-10

Sep

-10

Feb

-11

Jul-

11

Dec

-11

May

-12

Oct

-12

Mar

-13

Aug

-13

Jan

-14

Jun-

14

$ p

er b

arre

l (B

rent

)


A major net importer of oilGenerally, 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


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


$0

$20

$40

$60

$80

$100

$120

$140

200

9

2010

2011

2012

2013

2014

2015

2016

$ p

er b

arre

l

Australia Malaysia Indonesia

-30-20-10

01020304050

200

4

200

5

200

6

200

7

200

8

200

9

2010

2011

2012

2013

2014

2015

Tho

usan

d p

eop

le

Australia Malaysia Indonesia

$0

$1

$2

$3

$4

$5

$6

$7

$0

$20

$40

$60

$80

$100

$120

$140

200

7

200

8

200

9

2010

2011

2012

2013

2014

2015

Q2-

2016

$ p

er s

q f

t p

er m

ont

h

$ p

er b

arre

l (B

rent

)


4,000

4,200

4,400

4,600

4,800

199

5

199

7

199

9

200

1

200

3

200

5

200

7

200

9

2011

2013

2015

Tho

usan

ds

of

bp

d


JAKARTA KUALA LUMPUR PERTHMUMBAI

MARKETS

MARKET INDICATORS

Office Absorption





Office Vacancy

Job Growth

0%

5%

10%

15%

20%

0%

5%

10%

15%

20%

0%

5%

10%

15%

20%

15%20%25%30%

5%10%


21,065,300 sq ft

APAC

3,700,000 sq ft2,268,287 sq ft

-4.4% -5.6%0%

5%

10%

15%

20%

-5.7%

15%20%25%30%

5%10%

15%20%25%30%

5%10%

15%20%25%30%

5%10%

1,272,300 sq ft

Note: Average availability ratio – Mumbai and Perth – 4-year average

0%

10%

20%

30%

0%

10%

20%

0%

10%

20%

30%

0%

10%

20%

30%

-100

100

300

Tho

usan

d p

eop

le

-20

0

20

40T

hous

and

peo

ple

0

100

200

300

Tho

usan

d p

eop

le

0

1,000

2,000

3,000

Tho

usan

d s

q f

t

01,0002,0003,0004,0005,000

Tho

usan

d s

q f

t

0

1,000

2,000

3,000

Tho

usan

d s

q f

t

-800

-400

0

400

Tho

usan

d s

q f

t

0

15

30

45

Tho

usan

d p

eop

le


SINGAPORE

MARKETS

Office Absorption





Office Vacancy

Job Growth

0%

5%

10%

15%

20%

-10.4%

15%20%25%30%

5%10%

4,311,599 sq ft

0%

10%

20%

0

50

100

150

Tho

usan

d p

eop

le

0

500

1,000

Tho

usan

d s

q f

t


Tianjin

15%

Dalian

17%


Job Growth Ranking*



Rent Growth Ranking

(15 top cities)Q1 09 - Q2 14

Dalian 29 9 10 9

Tianjin 3 14 7 10

Beijing 5 25 1 2

Shanghai 12 40 4 14

Guangzhou 8 24 3 6

Shenzhen 1 12 2 3

Xi’an 13 20 8 15

Shenyang 31 41 11 4



4.7% of global oil production comes from China.Shanghai

6%

3%

Shenzhen


Source: EIA, BP, City Statistics Bureaus, Cushman & Wakefield Research


Job Growth Ranking*



Rent Growth Ranking

(15 top cities)Q2 14 - Q2 16

Dalian 43 44 9 7

Tianjin 2 13 12 12

Beijing 8 27 1 9

Shanghai 1 2 5 3

Guangzhou 3 14 4 8

Shenzhen 37 40 2 1

Xi’an 32 38 8 15

Shenyang 25 31 7 14

*(49 cities) 01/01/14-12/31/14

Source: City Statistics Bureaus, Cushman & Wakefield Research

2%

Shenyang4%

Beijing

4%

Xi’an

4%

Guangzhou




GREATER CHINA

*(49 Cities) 01/01/09-12/31/13

$0

$20

$40

$60

$80

$100

$120

Aug

-14

Oct

-14

Dec

-14

Feb

-15

Ap

r-15

Jun-

15

Aug

-15

Oct

-15

Dec

-15

Feb

-16

Ap

r-16

Jun-

16

Aug

-16

$ p

er b

arre

l (B

rent

)

$0

$20

$40

$60

$80

$100

$120

Jan

-09

Jun-

09

No

v-0

9

Ap

r-10

Sep

-10

Feb

-11

Jul-

11

Dec

-11

May

-12

Oct

-12

Mar

-13

Aug

-13

Jan

-14

Jun-

14

$ p

er b

arre

l (B

rent

)


4.7% of global oil production comes from China.

Energy producing provinces feel the biteChina is the world’s largest net oil importer and the second largest oil consumer. Petroleum and total liquids production in China in 2014 was nearly 4.6 million bpd, a 50% increase from 20 years ago. Recently, energy and production activity has been concentrated in the offshore regions of the South China Sea and Bohai Bay, as well as onshore regions in central and western provinces such as Sichuan, Inner Mongolia, Gansu, and Xinjiang. China’s national oil companies dominate the oil and natural gas upstream and downstream market in the country. International oil companies, however, do have access to the more technically challenging onshore and offshore fields.

National and international HQs favor BeijingBeijing is home to both the headquarters of China’s large national oil companies and the China headquarters of international oil companies doing business in the country. Other energy-centric markets in the region are the preferred locations for the divisional and sub-regional offices of both national and international oil companies. But there are city-level specific energy-centric markets. In Xinjiang, Karamay’s energy sector accounts for a substantial 77% of overall city GDP. However, office users in markets like Karamay tend to own rather than lease. Other markets, specifically Dalian and Tianjin, not only boast a significant energy component in their local economies, but they also have established office leasing markets.

High prices – Dalian job growth; Low prices – Shanghai job growthAs oil prices rose prior to the end of 2014, energy sector-dominated markets such as Dalian and Tianjin experienced the largest job growth in percentage terms. When oil prices declined in late 2014, job growth in both of these areas slowed sharply, but remained positive. Conversely, non-energy centric cities such as Shanghai saw significant job growth over that same period. Benefiting from the net positive economic effects of cheaper oil, companies in the non-energy centric markets consequently used their profitability to raise headcounts in an attempt to gain greater market traction.

Substantial office supply expected in coming yearsIn the next two and a half years, office supply is expected to increase across a number of oil-centric markets in China, leading to an increase in space availability.

CHINA OIL PRODUCTION


CHINA GAS PRICE

Source: National Development & Reform Commission, Cushman & Wakefield Research

CHINA ENERGY SECTOR EMPLOYMENT, ANNUAL GROWTH

Note: 2015 figure is estimated

Source: National Statistics Bureau, Cushman & Wakefield Research

OIL PRICE VS. CHINA RENT CORRELATION

Note: Rental is average rent for the eight tracked oil markets in China


2,500

3,000

3,500

4,000

4,500

199

5

199

7

199

9

200

1

200

3

200

5

200

7

200

9

2011

2013

2015

Tho

usan

ds

of

bp

d

5,000

6,000

7,000

8,000

9,000

10,000

11,000

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

RM

B p

er t

on

0

50

100

150

200

250

$0

$20

$40

$60

$80

$100

$120

$140

200

7

200

8

200

9

2010

2011

2012

2013

2014

2015

Q2-

2016

RM

per

sq

m p

er m

ont

h

$ p

er b

arre

l (B

rent

)

Oil Price Office Rent -100

0

100

200

300

400

500

600

200

4

200

5

200

6

200

7

200

8

200

9

2010

2011

2012

2013

2014

2015

Tho

usan

d p

eop

le


BEIJING DALIAN SHANGHAI

GREATER CHINA

MARKET INDICATORS

Office Absorption





Office Vacancy

Job Growth

20%30%40%50%

0%10%

20%30%40%50%

0%10%

20%30%40%50%

0%10%

20%30%40%50%

0%10%

Source: City Statistics Bureaus, Oxford Economics, Cushman & Wakefield Research

4,662,044 sq m

685,553 sq m1,847,061 sq m

4,298,406 sq m

GUANGZHOU

0%

5%

10%

15%

20%

0%

5%

10%

15%

20%

-1.4%0%

5%

10%

15%

20%

0%

5%

10%

15%

20%

GREATER CHINA

0%

5%

10%

15%

0%10%20%30%40%

0%

5%

10%

15%

0%5%

10%15%

20%

0

500

1,000

1,500

2,000

Tho

usan

d s

q m

0

40

80

120

Tho

usan

d s

q m

0

200

400

600

Tho

usan

d s

q m

0

500

1,000

1,500

Tho

usan

d s

q m

0

100

200

300

Tho

usan

d p

eop

le

-12-606

12T

hous

and

peo

ple

0255075

100

Tho

usan

d p

eop

le

0

45

90

135

Tho

usan

d p

eop

le


SHENYANG

GREATER CHINA

SHENZHEN TIANJIN XI’AN

Office Absorption





Office Vacancy

Job Growth

0%

5%

10%

15%

20%

0%

5%

10%

15%

20%

0%

5%

10%

15%

20%

0%

5%

10%

15%

20%

20%30%40%50%

0%10%

20%30%40%50%

0%10%

20%30%40%50%

0%10%

20%30%40%50%

0%10%

451,100 sq m

3,424,803 sq m

1,461,254 sq m 1,361,534 sq m

-6.8% -9.5% -30.1%

36%

38%

40%

42%

0%

10%

20%

30%

0%

20%

40%

60%

0%

20%

40%

60%

0

40

80

120

Tho

usan

d s

q m

0

400

800

1,200

Tho

usan

d s

qm

0

200

400

600

Tho

usan

d s

q m

0

100

200

300

Tho

usan

d s

q m

-12-606

12

Tho

usan

d p

eop

le

0

45

90

135T

hous

and

peo

ple

0

50

100

Tho

usan

d p

eop

le

-16

-8

0

8

Tho

usan

d p

eop

le

CUSHMAN & WAKEFIELD’S OIL & GAS CONTACTSCushman & Wakefield’s Oil and Gas Team services the needs of this sector’s clients and contacts around the world. A core group of specialists operating from regional hubs deliver a diverse range of services and real estate applied thought leadership to the sector.

RESEARCHKevin ThorpeChief Economist, Global Head of Research+1 202 266 [email protected]

BUSINESSAmericasMartin Woodrow+1 303 729 [email protected]

EMEAJames Taylor+44 (0) 20 3296 [email protected]

APACDavid Jones+65 6876 [email protected]

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DisclaimerThis report has been produced by Cushman & Wakefield

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