The Shale Surge: $80B Economic Boom Reshaping American Cities
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," adds Rutherford. "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," says Rutherford. "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 1 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.
Click here to read the rest of Haisten Willis’ story.