by admin

By Haisten Willis

Shale zone communities have discovered another benefit from their surging economic growth: more of everything. Small towns like Williston, North Dakota, which has relatively little retail, are now catching the eye of major brands like Whole Foods Market and Trader Joe's.

With $80 billion expected in annual investments over the next six years and rapid population expansion, local infrastructure construction and real estate development in shale formation areas like the Bakken in North Dakota and Eagle Ford in Texas are turning small outposts into genuine boomtowns.

According to JLL’s 2014 North American Energy Outlook, major metropolitan areas are benefitting too, with “surge cities” fuelled by oil and natural gas production growing at more than twice the pace of their peers.

“The energy boom is having a dramatic effect on the infrastructure of these boomtowns and on the economies of the hubs that support the oil and gas business,” says Bruce Rutherford, international director and head of oil and gas practice for JLL. “Sites like Williston and Midland, Texas, or Hobbs, New Mexico in the Permian Basin are having a tremendous influx of workers, and those workers need to eat, they need places to shop and they need homes. All of this demands infrastructure that doesn’t exist, and it needs to be built.

“It also creates a business that has to be supported regionally which means jobs and a surge of economic activity in cities like Houston, Denver, Dallas and Pittsburgh,” Rutherford adds. “We are just scratching the surface of the benefit on our local economies.”

These developments have taken on new urgency as the U.S. prepares to join Canada as a net exporter of oil and gas as early as 2015, according to the International Energy Agency. JLL’s Energy Outlook quantifies this progress.

“The U.S. Department of Commerce’s recent announcement that it will open the door to more U.S. oil exports is an incredible economic opportunity,” Rutherford says. “Increases in crude production could lead to a nearly $73 billion rise in the U.S. GDP in 2016. That means more jobs and economic growth in these communities.”

By creating communities where shale workers want to live and bring their families, shale zones can attract the right talent to produce oil and gas in a timely manner from every land lease. It’s no surprise that apartments, stores, roads and hotels are being built at a rapid pace. Property values are rising and vacancy rates are plummeting.

Surge Cities: A Zone-by-Zone Infrastructure Progress Report

Like all real estate, shale zone infrastructure development is unique to each local market. Here’s how critical infrastructure is progressing in each shale zone, as documented in JLL’s report:

The Bakken (North Dakota and surrounding areas): Real estate is at a premium and retail development needs are profound. The average retail square foot per person is at 12 in North Dakota, nearly 50 percent less than the U.S. average. Man camps are commonplace due to low housing vacancy rates and rising home prices, which are expected to jump 9.7 percent by 2018.

• Boomtown: Williston, North Dakota. Often used as the face of the shale zones, Williston is a relatively new market with little existing retail to support its rapidly growing population. Apartment rents are above $2.50 per square foot. The future is bright: Williston offers the expectation of a 30-year window of prosperity coupled with a flurry of new housing and retail developments. One example: Swiss real estate company Stropiq is planning a $500 million, 219-acre development featuring one million square feet of retail, entertainment and hotel space along with offices and residential plots.

• Surge City: Denver, Colorado. Energy-related tenants occupy 25 percent of the top properties in Denver’s central business district. Energy industry employment in the region is expected to remain strong in the near future, buoyed by Denver’s proximity to higher education and public policy programs. Denver has some of the strongest apartment rental growth rates in the country as vacancy rates have dropped to a historical low. The Mile-High City’s office market is typical of a shale zone surge city, where energy companies are battling for prime space, giving landlords the upper hand in lease negotiations. Meanwhile, growing small- and mid-size energy companies are scaling up, seeking top properties in the central business districts to attract talent.

Eagle Ford (South Texas): The supply of housing and retail developments is mostly in check with demand, although there is a shortage of restaurants. Home values should see a modest increase through 2018.

• Surge City: Houston. Energy tenants take up 51 percent of Houston's top central business district office properties, and demand remains strong as energy firms divide into smaller, more focused units requiring separate space. New development continues in Houston’s Energy Corridor, with nearly five million square feet of office space under construction. Until new construction makes headway, office tenants will have limited options. New apartment complexes are also under construction as vacancy rates have dropped from 12.9 percent in 2010 to 5.5 percent today.

Marcellus (Pennsylvania, West Virginia, Ohio and surrounding areas): The infrastructure challenges in the Marcellus shale are comparable to the aging infrastructure in cities. There is also a lack of usable real estate in small towns. In production communities, retail developments have blossomed, but grocery stores remain in short supply.

Surge City: Pittsburgh. Most energy companies reside within suburbs, but five percent of Pittsburgh’s top-tier office properties in the CBD are occupied by energy tenants. Vacancy rates are at record lows. Approximately 1.5 million square feet of new office property construction is underway, but rents will continue to rise through the end of this year. As with other shale zone surge cities, large energy companies are building sprawling campuses in the suburbs. As these companies move, prime office space is expected to open up in the CBD in 2015.

Barnett Shale (East Texas, Northwest Louisiana and surrounding area): A surging population has left housing in short supply, with home values expected to increase 36.1 percent through 2018. The area is hungry for grocery stores and restaurants.

• Surge City: Dallas-Fort Worth. A long-time oil-rich economy, the Dallas-Fort Worth metro area continues to reap the economic benefits of energy production – not only from Haynesville but more directly from production in the Barnett Shale. Population growth is roughly twice the national average and apartment vacancy rates plummeted from 10.3 percent in 2010 to 4.6 percent today. Energy tenants occupy 28 percent of the prime real estate in the CBD of Fort Worth, and nine percent in Dallas. The market for office space remains tight, but organic growth among energy companies is generally slowing, opening more space as companies right-size their operations or look to the suburbs.

You may also like