Boom Towns: Energy Industry Triggers Heated Competition for Prime Real Estate

Boom Towns: Energy Industry Triggers Heated Competition for Prime Real Estate

Jones Lang LaSalle research identifies top North American cities where
commercial real estate demand has spiked due to rapid energy industry growth

PR Newswire

HOUSTON, June 19, 2013

HOUSTON, June 19, 2013 /PRNewswire/ --Growth in the domestic energy industry
is expected to create more than 3.5 million American jobs by 2035, including
700,000 in the next two years alone*. The same industry growth creating jobs
is also driving heated competition for prime real estate – predominantly in a
handful of cities where the oil and gas industry is booming. New research from
Jones Lang LaSalle (JLL) indicates that the majority of commercial real estate
opportunities resulting from this job growth will be concentrated in the
following North American cities: Calgary, Dallas, Denver, Houston,
Philadelphia and Pittsburgh.

In the firm's inaugural Energy Outlook Report, these cities are characterized
as benefitting from up to three quarters of the anticipated 3.5 million new
energy jobs directly correlating with nearby rural areas experiencing a rise
in energy activity. Notably, the remaining 875,000 jobs are anticipated in
other regions, including financial centers such as New York City and Chicago
not directly associated with oil and gas production.

"The rapid growth in domestic oil and gas production has made a large but
uneven impact on the U.S. economy," said Bruce Rutherford, JLL International
Director and Energy Practice Leader. "In the top energy cities, commercial
real estate markets are booming, with growth creating scarcity – and thus a
landlord-favorable market. This applies not only to offices, but also to
retail, hotel, multifamily, industrial and distribution facilities and sites."

Beyond Production: Job Growth Resulting in Office, Retail and Industrial
Demand

While energy production is the direct growth driver, much of the commercial
real estate demand is coming from affiliated industries, such as manufacturers
serving the energy sector. Steel pipe makers, for instance, are stepping up
production to meet demand. Similarly, chemical companies are prospering from
low natural gas prices, with some companies shutting down plants overseas and
diverting billions in capital expenditures to U.S. sites. According to the
Texas Chemical Council, chemical plants in Texas have already announced
roughly $15 billion in expansions as a result of natural gas growth, which is
expected to net 25,000 jobs in the state.

Rising employment in these regions is also spurring growth in demand for
multifamily and retail space. For example, JLL estimates that the energy
sector's impact on U.S. apartment demand likely contributed to nearly 25
percent of total unit absorption since 2002, an overall demand of
approximately 165,000 units. On the retail sector front, employment growth in
Houston, for example, totalled 4.4 percent over the last year – almost triple
the growth rate of the nation. Even during the recession, retail vacancy in
the market dropped 1.6 percent since its 2008 peak.

The energy markets have also contributed disproportionately to the office
recovery – representing 22 percent of recently-increased office space
occupancy in these markets.

JLL's research identified the following top energy-driven commercial real
estate markets:

  oCalgary. For more than two years, the office market in Calgary, Alberta,
    Canada has demonstrated increasing occupancy, as energy companies are
    elbowing one another to find the office space they need to support
    Canadian oil exploration, production and transport operations. The retail
    sector is reflecting Calgary's 'Boom Town' status as shown in Alberta's
    strong month-over-month retail sales growth during February 2013, growing
    at 2.2 percent, more than double the 0.8 percent growth rate for Canada
    overall.
  oDallas. Not only has the Dallas metropolitan area experienced a
    significant 1.3 percent drop in retail vacancy since 2010, it is also
    logging record growth in the office, industrial, multifamily and hotel
    sectors. Several new hotels are under construction in the market and the
    number is expected to rise as industry growth in 2013 continues and
    developers seek to add real estate projects that cater to business
    travellers in its emerging economic sectors.
  oDenver. Located near significant new opportunities for natural gas
    production, Denver is becoming a center of activity for energy companies,
    which are leasing space at a rapid pace. An analysis of energy leasing
    transactions revealed that energy tenants in Denver's central business
    district paid an average of 9.7 percent above landlords' initial asking
    office space rental rates.
  oHouston. Commercial real estate fundamentals in Houston are becoming more
    landlord-favorable every quarter. For example, retail vacancy in the
    Houston market has dropped 1.6 percent since its highest vacancy levels in
    2008. In Houston's suburban energy corridor, 81 percent of nearly three
    million square feet of new construction is pre-leased.
  oPhiladelphia. Proximity to new energy production sites is driving demand
    for both industrial/manufacturing facilities and office space in
    Philadelphia. The city's office and retail sectors are becoming highly
    landlord-favorable as a result of the influx of employment opportunities
    in the energy sector and with affiliated companies. With such rising
    interest from the energy sector, real estate investment volumes are poised
    to pick up in 2013 and 2014.
  oPittsburgh. Demand for new energy production components has driven an
    uptick in manufacturing activity in the Pittsburgh area. This growth has
    resulted in strong conditions for the industrial real estate sector in
    particular – but also across other commercial real estate sectors. Leasing
    demand from natural gas and other energy-related companies is helping to
    bolster the Pittsburgh office market, where rents are at their highest
    level in more than a decade. In fact, the Pittsburgh market is outpacing
    national growth in rents and occupancy, in large part due to the energy
    sector.

For specific information on how the energy boom is impacting North American
cities and energy industry commercial real estate needs, please download the
JLL Energy Outlook Report.

*according to industry reports from I.H.S. Global Insight

About Jones Lang LaSalle

Jones Lang LaSalle (NYSE:JLL) is a professional services and investment
management firm offering specialized real estate services to clients seeking
increased value by owning, occupying and investing in real estate. With annual
revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more
than 1,000 locations worldwide. On behalf of its clients, the firm provides
management and real estate outsourcing services to a property portfolio of 2.6
billion square feet and completed $63 billion in sales, acquisitions and
finance transactions in 2012. Its investment management business, LaSalle
Investment Management, has $47.7 billion of real estate assets under
management. For further information, visit www.jll.com.

For more news, videos and research resources on Jones Lang LaSalle, please
visit the firm's global media center Web page
http://www.joneslanglasalle.com/Pages/News.aspx.

SOURCE Jones Lang LaSalle

Website: http://www.joneslanglasalle.com
Contact: Joanne Bestall, +1 312.228.2344, Joanne.Bestall@am.jll.com
 
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