Shale Plays Fuel Manufacturing Growth

Manufacturing Plant
Manufacturing Plant

Shale plays are driving a surge in U.S. natural gas production. Production growth has pushed prices well below the peaks experienced in the 2000's. Natural gas at less than $4/mmbtu, as of the end of 2012. Cheap fuel means cheaper energy, cheaper manufacturing, and cheaper products.

Natural gas or by products are used for heating, power generation, and as a feedstock in multiple chemical and manufacturing processes. A recent BCG study noted that rising factory productivity will boost U.S. exports and lead to the growth of as many as 5 million jobs. Five million jobs added to a workforce that measures approximately 150 million would be almost 3% growth from one sector of the economy. Add direct oil and gas jobs and you see why what we're experiencing in the South Texas Job boom could translate to a widespread employment boom.

U.S. factory employment has grown by about 3.6 percent to roughly 12 million people from a 2010 post-recession low, a trend that could accelerate as the United States becomes a more competitive exporter, BCG said.

With lower manufacturing costs, the U.S. could potentially boost exports by almost $100 billion per year by capturing manufacturing that is currently done over seas. The wild card will be currencies. Europe's manufacturing sector is actually benefiting from a weak currency. Energy will be cheap in the U.S., but predicting major currencies is a wildcard in my book.

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Industrial Space in Short Supply - Houston - San Antonio

Industrial properties are well occupied in Houston.  Energy Service (Oil & Gas) companies have quickly filled available space in order to meet demands from growing oil & gas plays like the Eagle Ford Shale.

Companies Are Expanding and Relocating to Houston

Many of my clients have chosen to remain (and even expand) in Houston as a primary hub, and then open up satellites in South Texas to take advantage of the Eagle Ford Shale Play in South Texas.  Given Houston is deemed as one of the energy capitals of the world, has a low cost of living and enjoys a quality labor pool, companies are oftentimes relocating to Houston.  Therefore, industrial space is being absorbed at a nice clip.  New development has started on 3 speculative projects for distribution space.  This hasn’t happened since 2007.  Also, over 2 MM SF of manufacturing space (buildings with cranes) is under development for both users and future occupiers.  Overall, we know of very little speculative projects underway in any other area of the country.  Notable companies expanding in Houston are National Oilwell Varco, Weatherford, and KBR.

Manufacturing and Distribution Space is Hard to Find

“What do you mean there isn’t an ample amount of industrial (distribution/manufacturing) space available?”  I’m often challenged by this question, especially from companies not in Houston.  Based on challenges in the national economy, it seems industrial property would be readily available in Houston.  Well, that is not necessarily the case, particularly for the West side of the city.  It’s a 94-96% occupied market – and even higher in the manufacturing sector. The Eagle Ford Shale in South Texas has driven demand for industrial space given the need for technology enhancements, manufacturing of products (particularly requiring a heavy crane), and assembly & distribution of those finished products -  such products including valves, tubing, cabling, drilling motors/tools, etc.

Companies Also Expanding into South Texas (San Antonio area)

In addition to the growth and expansion in the Bayou City, Weatherford and Halliburton have announced new locations in the San Antonio area.  Halliburton’s presence will create over 1,500 jobs.  Experts say we’re only in the 2nd inning of this “game”.  This is obviously a significant and positive driver to the San Antonio economy as well.