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The Shale Surge: $80 Billion Economic Boom Is Reshaping North American Cities

Oil and Natural Gas Production Is Paving the Way for New Restaurants, Hotels, Homes, Stores and Improving Lifestyle in Small Towns and Big Cities in the U.S. and Canada

HOUSTON, TX--(Marketwired - July 21, 2014) - JLL (NYSE: JLL) -- Shale zone communities have discovered yet 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 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 boom towns.

According to JLL's new 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 boom towns and on the economies of the hubs that support the oil and gas business," said Bruce Rutherford, International Director and head of the oil & gas practice for JLL. "Sites like Williston and Midland, Texas, 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. 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-which for some rapid-growth communities is already long-overdue.

"The U.S. Commerce Department recent announcement to open the door to more U.S. oil exports is an incredible economic opportunity," Rutherford said. "Increase 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. So 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, and its ripple effect on neighboring major cities, 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 12.05 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 9.69 percent by 2018.

    Boom Town: 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 an expectation for 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 top properties in Dener's central business district. Energy industry employment in the region is expected to remain strong for the near future, buoyed by its proximity to higher education and public policy programs, encouraging growth. 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 for office space. 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 are 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 larger energy firms divide into smaller, more focused units that require separate space. New developments continue to escalate in Houston's Energy Corridor, with nearly five million square feet of office under construction. Until new construction makes headway, the office market will have limited options through 2015. New apartment complexes are also under heavy 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): Given its proximity to major cities and its abundant gas production, the infrastructure challenges in the Marcellus shale are comparable to aging infrastructure in cities, contrasted with 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 its top-tier office properties in the CBD are occupied by energy tenants. Vacancy rates are at record lows with large blocks of space virtually nonexistent. Approximately 1.5 million square feet of new office property construction is underway, but rents will continue to jump through 2014. 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 to 4.6 percent from 10.3 percent in 2010. 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.

The JLL Energy Outlook 2014 offers a detailed analysis of the current and future real estate and infrastructure development in North American shale markets and nearby cities. The findings highlight a dire need for real estate development, coupled with unique market dynamics in each shale zone. Download the full report here.

For more news, videos and research resources on JLL, please visit the firm's U.S. media center webpage. Bookmark it here:

About JLL
JLL (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 fee revenue of $4 billion, JLL has more than 200 corporate offices and operates in 75 countries worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3 billion square feet and completed $99 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has $48.0 billion of real estate assets under management. JLL is the brand name of Jones Lang LaSalle Incorporated. For further information, visit

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