What Effect Will Oil’s Plunge Have on Owners and Investors?
You would almost have to be living in a cave to not notice that oil prices are plunging. Increasing supply and decreasing demand have caused prices to drop from over $100 a barrel to under $50 a barrel in a matter of six months and don’t appear to be going up any time soon. So why does this matter to owners and investors of commercial real estate?
The Good: Positive Effects on Owners and Investors
Oil prices don’t just affect how much consumers pay to fill up their cars at the pump, the effect they have on transportation costs also impacts how much consumers pay for goods and services. This includes everything from shipping and travel costs to food and groceries.
As oil prices decrease, especially as significantly as they have recently, consumers are left with more money in their pockets to spend on things like vacations, clothes, groceries, eating out, and paying for rent. This is welcome news to owners of hotel, retail, restaurant, and multifamily properties because it gives a boost to their tenants. And in the world of real estate investing anything good for your tenants’ bottom lines is good for you.
Increases in oil prices also tend to drive inflation and interest rates. This subsequently causes the cost of borrowing to go up and reduces the bottom line on leveraged real estate investments. So lower oil prices helps to keep inflation and interest rates in check and tend to make investing in real estate a safer bet.
The Bad: Is there a Bad?
Of course, there will always be some places where these theories don’t hold true. In particular, places whose economies are heavily reliant upon oil product like Texas, Oklahoma, and Alaska may suffer. But overall, lower oil prices have a very positive effect for commercial real estate owners and investors.
The recovering economy and it’s relation to commercial real estate is a hot topic among owners and investors. To see more of my posts:
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About Chris Palmer- Chris has been working with SVN | SouthLand Commercial since 2010. He primary specializes in working with commercial real estate clients on development and investment related properties. Click here to read his full bio, or if you would like to contact him, you can call him at 850-434-7500 or email him at [email protected]
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