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2017 JLL Energy Outlook

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Three years from the start of the oil slump, employment and commercial real estate fundamentals are finally showing incremental improvement across North America’s energy markets. Examine the key themes in today’s industry and explores challenges and opportunities in seven energy-centric cities across the U.S. and Canada.

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2017 JLL Energy Outlook

  1. 1. North America 2017
  2. 2. Key themes State of energy markets1 Upstream, midstream, downstream update2 Checking in on small-town America3 Future of clean energy4
  3. 3. State of energy markets Employment • All markets saw average 1.4% y-o-y increase in energy employment except Calgary Office • Despite this, energy occupancy declined across all markets y-o-y – DFW lowest ratio; Calgary and Houston highest, markets “bouncing along the bottom” • Sublease inventory declining overall, but still well above long-term averages – Houston leads nation with 10.4 m.s.f. available Industrial • Faring better than office as trends outside energy are resulting in massive absorption (eCommerce, etc), MFG space most impacted but a smaller proportion of inventory overall Source: JLL Research -2.0% -1.0% -0.7% -0.7% -1.3% -2.2% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Fort Worth Dallas Pittsburgh Denver Houston Calgary 2016 2017 Office markets – energy tenant occupancy Fort Worth 0.8 m.s.f. Denver 1.0 m.s.f. Pittsburgh 1.4 m.s.f. Dallas 2.0 m.s.f. Calgary 3.2 m.s.f. Houston 10.4 m.s.f. Office markets – sublease magnitude
  4. 4. Upstream, midstream, downstream update Source: JLL Research Upstream • Companies restructuring lease agreements and putting space on sublease market in an effort to rightsize and streamline operations, though new subleases slowing dramatically Midstream • Largely unaffected by downturn, experiencing growth due to rising global demand for American oil and gas (LNG and petrochem) – affect on CRE not as dramatic Downstream • Houston and Pittsburgh major benefactors of investment in the sector, boding well for market health, especially when factoring other industrial demand 0 30 60 90 120 150 180 210 240 2013 2014 2015 2016 2017* Millionbarrels *Through July U.S. crude oil exports by destination World Europe Canada China 464,000 jobs to be created by 2025 from chemicals industry
  5. 5. Checking in on small-town America Source: JLL Research • Small towns which grew with shale boom left to deal with aftermath of slumping prices and limited or consolidating E&P activity • Ratio of “down” markets to “up” is 3-to-1, with “tenant favorable” cities - or those with decreasing occupancy and activity - representing 101 out of 133 small towns • No difference in small-town performance when comparing by shale formation – all hit hard • With oil and natural gas prices low and technology making process more efficient, net new employment growth and demand for CRE property in the oil patch unlikely in near-term Landlord favorable Tenant favorable Population Average size of towns: 14,143 residents Population Average size of towns: 27,735 residents 101 towns 32 towns Rents falling Rental decline stabilizing Rental growth slowing Rents rising Peaking phase Falling phase Rising phase Bottoming phase Landlord favorable Tenant favorable
  6. 6. Future of clean energy • In 2016, nearly $60 billion clean energy market in U.S. • Two-thirds of total electricity supply in Canada from renewable sources in 2016 • More than 65% of Fortune 100 companies now have clean energy targets • CRE occupiers, owners and operators are seeking innovative and emerging technologies to reduce energy consumption and in turn boost profit margins • Continued evolution creating new ways to leverage sector in CRE arena, forging opportunities for owners, investors and tenants 0.1 0.8 1.2 3.3 1.6 2.1 2012 2013 2014 2015 2016 YTD 2017 Corporate renewable deals Capacity (GW)
  7. 7. Eli Gilbert Senior Vice President +1 713 425 5903 eli.gilbert@am.jll.com Rachel Alexander Research Manager +1 713 888 4044 rachel.alexander@am.jll.com

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