Rig count vs Rent

Brittany Cass Jun 14, 2024
3 min read
Rig count vs Rent

Property valuation is an ever changing landscape based on a variety of different factors.  Markets are local and can be affected in different ways by the same stimulus.  For example, West Texas is heavily dependent on oil prices and production, while Dallas appears hardly affected. 

It is critical to know, understand, and track the factors that directly impact your property.  Those factors that impact rent, vacancy, the concessions given and the expenses needed to operate your property.  Let’s return to West Texas and oil.  Oil prices vary daily and can create a rather choppy looking graph.  By utilizing moving averages, we can spot trends in the market price.  By using a one year moving average and a two year moving average, we can begin to see market direction.  When the two year moving average is higher than the one year, it means that prices are falling much faster and typically we are entering into a bust for oil.  On the other hand, when the one year moving average exceeds the two year moving average, we are usually entering into a boom economy for oil.  Let’s see this in action in the Permian Basin. 

The oil price tends to be a leading indicator of the Permian Basin market.  Oil shows the direction of the shift before the rig counts can react.  Below is a graph of the rig counts and you can see from the dates, that they lag when the oil moving average lines cross.

What is most informative is the relationship between the oil rigs and market effect rent.  The direction of the rigs has an almost immediate effect on the rents charged and collected.  As rig counts drop, vacancies increase, rents drop in an attempt to keep renters, and the whole potential gross revenue of the property decreases.

By studying these market factors, you can begin to predict when the market dynamics are shifting and which way the market is headed.  By using oil price as a lead indicator in West Texas, you can begin to make proactive decisions on acquisitions, cost control, or any other number of issues in advance. 

Learning the factors affecting your specific property is not something that is done well with a fleeting glance. Does your agent really have the time dedicated to visiting your properties, and creating the documentation to secure the tax appeal reduction you deserve? 

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