FEATURE ARTICLE, AUGUST 2010

A CRUDE REALITY FOR TEXAS REAL ESTATE
A look at how BP’s Gulf oil spill will affect the commercial real estate industry in Texas.
Jon Ross

When the BP oil well in the Gulf of Mexico started spewing gallons upon gallons of crude into the water in late April, the impact this tragedy would have on the commercial real estate markets in Texas was a huge unknown. Brokers and developers were devastated by the environmental implications of such a catastrophe, but they initially thought — had the spill only lasted a few weeks — their commercial livelihood wouldn’t be negatively impacted because the spill seemed to be far off the state’s shoreline. But with the spill’s current size and the threat of government sanctions against the oil industry, the commercial real estate market along the Gulf Coast may be in for a change.

The oil spill will have a ripple effect on the state’s economy, says Steve Jaggard of Vantex Commercial Property Group. Oil exploration will have to fight against a negative perception against the industry and even possibly new regulations; this will cause some adverse effects that will extend to the real estate world.

“It’s going to be very, very harmful on our economy, at least in the short term,” Jaggard says. “If the energy industry doesn’t hire more people, that hurts office space as well as the manufacturing and industrial end,  so I think you get hit all ways. I don’t think anybody goes unscathed because if you just made a list of all the businesses associated with the energy industry … it’s pretty far reaching.”

Brokers in the Southeastern states bordering the Gulf of Mexico are very concerned about the effect the spill will have on tourism. When fewer people take trips to the area, hotels start feeling a pinch as well as restaurants and other property types that rely on outside money for a huge chunk of business. The focus in Texas is strictly on the oil industry.

“With what’s going on in Washington with the bans, it’s basically got the oil industry shut down for the short term,” Jaggard says. “Right now we’re stagnated. We’re shut down, and nobody’s doing anything. That’s a dangerous zone to be in.”

Corpus Christi is surrounded by the oil and gas business, so Matt Cravey of NAI Cravey was really able to see the long-term implications of the spill. Environmentally, he was concerned about the safety of the Gulf; economically, he knew trouble lay ahead for the deepwater drilling industry. 

“It definitely bothered us,” Cravey says. “It rallied everybody to review, ‘Are we prepared for something like this?’ Other than that, we weren’t sure what it was going to do initially because we didn’t know how long this was going to last. You just sit and watch.”

 What he couldn’t have predicted, however, is the uptick in demand the city’s industrial and office buildings would experience. Once the threat of a deep-water drilling moratorium was floated by the federal administration, firms started looking again at strata in the state. What they found was the Eagle Ford shale strata that runs along the Western portion of Texas. Leases upon leases followed as companies flocked to the area. Cravey says that every service yard — which consists of a 10,000- to 20,000-square-foot warehouse on a 5-acre yard — is full. Companies that were looking to sublease their space are in some cases reconsidering and deciding to stay put.  

“We leased the two largest Class A office buildings in the city, and everybody that’s involved in some way in oil and gas, whether it’s expiration or service, is expanding,” he said.

After a lengthy cleanup process, oil exploration in the Gulf will gear back up, guided by new rules and regulations, Jaggard says. This new way of drilling, whatever the regulations may be, will help generate real estate demand and fill vacant space. Firms will have to lease office and warehouse space in order to test out new safety procedures and manufacture products. 

“With new engineering techniques, they’ll fine tune all the pieces of equipment on these rigs, and that will be manufactured here,” Jaggard says. “The oil and gas business seems to be a boom or bust mentality; it’s leveled off more than it used to be, but I think we’ll be in a very, very positive growth mode once we get this straightened out and people know the rules they’re playing by.

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