Energy companies competing for prime real estate

June 20, 2013 | By Barbara Vergetis Lundin

The United States has emerged as a world energy leader driving a surge in real estate demand, according to research from Jones Lang LaSalle (JLL).

Energy companies are demanding more industrial, development and manufacturing space around shale plays, as well as larger office footprints in hub locations to accommodate a growing workplace, JLL says. 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, according to IHS Global Insight.

Real estate demand is heating up in a handful of North American cities with booming oil and gas industries, according to JLL, including Calgary, Dallas, Denver, Houston, Philadelphia and Pittsburgh, which benefit 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. The remaining 875,000 jobs are anticipated in other regions, including financial hubs like New York City and Chicago although not directly associated with oil and gas production.

For more than two years, the office market in Calgary, Alberta, Canada has demonstrated increasing occupancy, as energy companies try to find the office space they need to support Canadian oil exploration, production and transport operations.

Denver is located near significant new opportunities for natural gas production and 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, according to JLL.

Proximity to new energy production sites is driving demand for both industrial/manufacturing facilities and office space in Philadelphia and demand for new energy production components has driven an uptick in manufacturing activity in the Pittsburgh area. 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.

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