JLL: Opportunity in ‘Downstream’ Energy-Sector Markets
“Downstream” energy markets such as Pittsburgh and Denver are primed for growth even as extraction-heavy markets struggle, reported JLL, Chicago.
More “upstream” energy-centered markets–including Houston and Calgary, Alberta–that focus on finding and drilling for crude oil and natural gas are seeing lease agreements restructured and available sublease space growing, the JLL North America Energy Outlook said. “As a result, North American energy hubs are currently working through record sublease inventories,” the report said. It noted available sublease space has declined from record levels set last year but said it remain well above long-term averages.
“Energy markets more closely associated with downstream activity [such as refining and processing energy products] are seeing more landlord-favorable conditions than their counterparts because of demand for space in the sector,” said JLL Energy Practice Co-Lead Lindsay Brown.
For example, a new petrochemical facility near Pittsburgh has already spawned 400,000 square feet of completed speculative industrial development and will likely help fill office vacancies as that sector develops further, JLL said.
The “midstream” sector–responsible for transporting and storing oil and gas–has been largely unaffected by the prolonged energy-sector downturn, JLL noted. “In fact, the midstream sector is experiencing growth due to rising global demand for American oil and gas,” the report said. “In Houston, midstream oilfield services and utility companies are capitalizing on sublease opportunities brought to the market by upstream and integrated energy firms.”
The midstream sector is well positioned to grow to serve expanding liquefied natural gas and petrochemical markets, JLL said. Formations including Wyoming’s Powder River Basin and the Marcellus Shale Play in Pennsylvania present increasing opportunities for midstream companies.
Brown noted markets with significant clean energy infrastructure are more insulated from oil and gas industry fluctuations, “and we expect them to grow considerably over the next few years,” she said.
Commercial real estate occupiers, owners and operators are seeking new technologies to reduce energy consumption and in turn boost their profit margins, JLL noted. “Commercial property owners are increasingly more aware of their carbon footprints,” the report said. “Office developers now see LEED certification as the norm in new construction, and industrial owners are beginning to retrofit property rooftops with solar panels.”
JLL Energy Research Director Eli Gilbert said renewable energy’s “continued evolution” is creating new opportunities in commercial real estate. “Staying ahead of the energy industry will be more critical than ever, and companies must determine how best to capitalize on the growing renewables sector,” he said.
