In the summer of 2014, the price of crude oil was on the decline, dropping from $100 per barrel all the way down to $30 per barrel in January 2016. Although prices have rebounded and currently hover around $50 per barrel, big energy companies worldwide have reacted by tightening their purse strings. One way for energy companies to regulate their spending is to divest themselves of commercial properties either by selling or subletting their real estate.
Tim Relyea, executive vice chairman of Cushman & Wakefield, one of the largest commercial real estate services firms, told the Houston Business Journal last year that, “Ninety percent of the energy companies in Houston have more than likely cut back, and they may not have put space on the market for sublease, (but) they may be sitting on vacant space,” Relyea said. “There’s nobody in the industry that’s not retooling for $30 crude.”
Many companies with a presence In Houston have made cutbacks. Below are some energy companies which have shuffled their Houston commercial real estate portfolios over the past couple of years.
In 2015 BP began downsizing by putting about 250,000 square feet of commercial space in Westlake Two and Three on the sublease market. In August 2016, BP announced it would sell Helios Plaza, a six-story building which housed its trading operations with a plan to lease it back once the sale was completed. Opened in 2010, it was the first building in the world constructed specifically for trading energy derivatives. The news came only a few days after BP had announced that it would sublease the 562,000-square-foot Westlake Four building. The company plans to exit the property completely by early 2017 and relocate Westlake Four employees into Helios Plaza and Westlake One.
An anchor in the downtown office market since the early 1970s, Shell announced in 2016 that it would relocate 3,400 downtown employees to Shell’s Woodcreek and Shell Technology Center suburban properties during the first quarter of 2017. Shell is subleasing space in two downtown buildings, 300,000 square feet in the BG Group Place and 350,000 square feet in the iconic 50-story One Shell Plaza, the 10th tallest building in Houston. Only employees engaged in trading will remain downtown.
After cutting its budget in half in 2015, the San Ramon, California-based energy giant put two of its larger Houston area properties up for sale in 2016. A 10-story Bellaire office building at 4800 Fournace Place near the West Loop and 103 acres at Clay Road and the Grand Parkway were being sold by Chevron. Employees at 4800 Fournace Place will be moved out by the end of 2017. The Clay Road property was originally purchased in 2014 for a research and development site.
Like Chevron, Marathon Oil also cut its capital program by more than half in 2016. As part of Marathon’s cost-saving measures, the company put 81,000 square feet of space on the 21st, 22nd and 23rd floors in the 41-story Marathon Oil Tower on the market in February 2016.
After reporting its first net loss in over a decade and a half, the Anglo-Australian multinational energy company cut back on spending. In early 2016, BHP Billiton listed almost 375,000 square feet of space on the sublease market in two Houston buildings, both in the Four Oaks Place office complex. However, in the fall of 2016, the company still was able to move into a brand new 30-story tower at 1500 Post Oak Blvd.
As of October 2016, ConocoPhillips had placed 97,000 square feet of commercial office space on the sublease market in their Westlake area with an additional 135,000 square feet already having been sublet earlier in the year. The company reportedly also had several other sublease deals in the works.
Unprecedented Opportunity for New Business
With close to 28 million square feet of office space currently available in the greater Houston area, prime real estate can be obtained all over town. This high vacancy opens up new opportunities for potential tenants considering leasing commercial office space in Houston.