| Peak Oil - This Could Change Everything |
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I just finished reading an article by Jim Gillespie, a commercial real estate coach, in which he discusses peak oil and its impact on the commercial real estate business. But first of all, what does Peak Oil mean?
 Jim describes it this way. "When oil fields are new, and petroleum is beginning to be extracted from them, they continue to produce increased amounts of petroleum every year until the production from the field reaches its peak level. Then after this peak amount of production is achieved, the field will only be able to produce lesser and lesser amounts of petroleum every year thereafter. This is the very nature of the petroleum extraction process."
Jim says that US production peaked in 1970 and says that many experts think that production in Saudi Arabia is peaking right now.
So what, you might say. Well, declining production means less supply. At the same time, demand is increasing rapidly in developing countries like China and India. Put the two together and you have a formula for enormous upward pressure on oil prices. And that means much higher gas prices. Jim's article quotes an oil industry expert who says it will go to $10 a gallon.
The ripple effects of this would be enormous for all industries and particularly to consumers. But here are Jim's thoughts on what impact this might have on real estate.
1. The values of homes and residential rental properties in and closer to major cities will probably do better in the long run versus those located farther away in the suburbs.
2. Office buildings will experience a major increase in heating and air conditioning costs, especially those located in areas with severe winters or very hot summers.
3. Commercial and industrial properties closer to the major cities will...command even more of a premium in the future when compared with commercial space in the suburbs.
4. There will be a need for a much greater amount of housing near the central business districts of major cities.
5. Industrial businesses will transition away from shipping and receiving their goods by truck and towards shipping and receiving them by rail which will be more economical for them.
6. Manufacturing businesses that already have substantial energy costs right now will be hit very hard with the coming increases in these costs and will find it increasingly difficult to remain profitable."
To read Jim's full article, click here. He also has an audio interview here.
So what do you think of this? Agree? Disagree? Don't care? Let me know your thoughts.
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| Thanks for Reading |
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Reata Commercial Realty, Inc.
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