With Emerging Energy Sources Come Emerging Energy Hubs

As renewables and alternative sources grow their share in the mix of total energy production, new real estate hub markets will emerge across North America, JLL reports. “Traditional investment flows into the industry have ebbed and flowed with oil prices, while new frontiers are being forged in renewables,  ’enertech’ and other sectors though substantial VC funding growth,” write the firm’s Rachel Alexander and Claudia Verno.  

This doesn’t mean the traditional energy hubs will be sidelined, though. “Markets with well-established existing ecosystems like Calgary, Denver and Houston are well positioned to benefit from the energy transition, while emerging markets like Toronto and San Francisco are more recent entrants,” according to JLL’s report. “Political and regulatory agendas have also shifted this year, setting a more favorable course for renewables and sustainability.” 

The move to a net-zero economy will have a significant impact on the demand for real estate and the energy jobs of tomorrow. Citing data from the International Energy Agency, JLL says it’s estimated that about 15 million new positions will come out of this transformation, displacing some of the conventional energy jobs common today.  

“The composition of these jobs, their location and the buildings needed to perform these functions will evolve considerably in the coming years,” write Alexander and Verno. This evolution is being driven by structural and regulatory changes within the energy industry, and by broader labor force and workplace trends. 

From a macro perspective, consolidation in the oil and gas establishment will continue, albeit at a more moderate pace than during the 2014 and 2020 waves, as demand for natural gas, LNG and hydrogen are set to increase through 2050. 

“Although hiring is expected to accelerate, it is too early to say whether that will mean a corresponding rise in demand for space, as most companies in this segment remain overleased and have not defined their hybrid work strategies,” JLL reports.  

It’s a different story in the renewables business: JLL expects “substantial growth in company formation and occupancy levels. Commercial real estate demand in local markets that cater to the renewables and abatement technology industry are bound to benefit from these trends.”  

As the transition progresses, Houston is expected to be reinforced as the “Energy Capital of the World,” Alexander and Verno write. The other traditional energy-centric markets—Calgary, Edmonton, Denver, Pittsburgh and Dallas–Fort Worth—are also seen also leveraging strong existing ecosystems to their advantage.  

“Emerging hubs like Miami, New York, San Francisco, Los Angeles, Toronto, Montréal and Vancouver stand poised to gain market share in the vast renewable and ‘enertech’ spaces,” JLL reports. “They are markets we will be watching in 2022 and beyond.” 

The report also provides a SWOT (strengths, weaknesses, opportunities, threats) analysis for each of the major established and emerging energy markets. Houston, for example, is threatened by continued energy company bankruptcies and M&A activity, along with rightsizing and hybrid work shifts. Conversely, the emerging energy real estate market of Los Angeles is buoyed by the strong presence of the electric vehicle industry, among other factors.