Gas drilling sparks real estate windfall

Pittsburgh Tribune Review
by: Sam Spatter

September 13, 2010

The natural gas-rich Marcellus shale has created a surge in real estate activity in Southwest Pennsylvania.

It's not confined to leasing acres of land for natural gas drilling operations, but extends to the rental of housing and the leasing of office, industrial and warehouse space since the boom in gas exploration in the mile-deep shale began here two years ago.

"I estimate at least 400,000 square feet of new and existing warehouse space has been leased or purchased — and that's probably a low figure," said Dan Petricca of Coldwell Banker Commercial, who has been actively leasing space to companies.

Dan Adamski, executive vice president, Jones Lang LaSalle Americas Inc., has an even larger estimate. "There is in excess of 1.1 million square feet of office/warehouse space leased by the firms involved in the Marcellus Shale," he said.

That approaches a whole year's worth of leasing activity for the entire Pittsburgh region, figures show. Reports from Grubb & Ellis Pittsburgh show that in 2009, total office and industrial space leased in the region was 1.26 million square feet. Suburban locations — including Southpointe, Washington County, which has seen much of the shale-related growth — contributed significantly to that total.

As for housing, about 80 percent of the activity in Washington and adjoining counties has been in rentals, said Betsy West, president of the Washington-Greene County Association of Realtors. The boom in shale gas exploration, however, has not had a major impact on home sales, she said.

The industrial and residential real estate boom has come from new companies bringing jobs and people to the region, West said.

There has been no exact count of jobs created in Southwest Pennsylvania from the natural gas boom, but one estimate has 44,000 jobs being added statewide.

A survey by the Marcellus Shale Coalition, a trade group representing gas companies, found that 10 companies with operations in Southwest Pennsylvania now have 2,076 employees, and they expect to add 5,185 new jobs through 2011.

Moon-based Atlas Energy Inc., has been on a hiring spree since it announced in April a $1.7 billion joint venture with Reliance Industries Ltd. of India. Atlas has added 158 people to its roster this year, bringing its total to 677 in Pennsylvania, said spokeswoman Claudia Koloski. Most of the hires have come from this region, she said.

Kelley Hoover, director of brokerage services at Burns & Scalo Real Estate, said nearly 70 percent of her recent leases have been with companies that drill for natural gas or support them. She has worked with about 11 who have leased more than 50,000 square feet of space in local office buildings, with more than 33,000 square feet alone in the Southpointe 1 complex in Washington County.

A combined 21,000 square feet has been leased in areas such as Neville Island, Montour Business Park and Bridgeville, she said.

There are at least 50 companies involved locally in shale operations, and more are coming here, she said. "Every week I hear from another company, usually located in the nation's southwest, who wants to locate an office here," she said.

Hoover said a shortage of leasable space may be developing at Southpointe. "It depends on the amount of space the company needs for its office, but currently it's difficult to find 2,000 square feet available," she said. That's about the size of a GetGo station and pumps.

Because of the influx of natural gas companies into the Southpointe area, the office vacancy rate there is about 8 percent, said Adamski. And some companies are considering adding more space.

Universal Pegasus, based in Houston, Texas., opened an office with 10,000 square feet five months ago at 601 Technology Dr., Southpointe. The company, which employs 15 engineers, project managers and surveyors, expects to add between 50 and 70 mostly local employees over the next 18 months and double its space, said CEO John Jameson. The company provides energy consultation services to the oil and gas industry.

"Southwestern Pennsylvania is projected to be our fastest-growing area in the years to come," Jameson said.

Range Resources Inc. is planning to build its own building, as are others. Developer Horizon Properties has proposed a 180,000-square-foot building for Range in the Southpointe II complex, also in Washington County.

Besides Washington County, other areas are seeing activity. Examples are:

• Megnablend Inc., of Waxabachie, Texas, purchased the former Mars Petcare warehouse in Everson, Fayette County, from Everson Development LLC for $1.25 million.

"The reason we moved here was because of the Marcellus Shale operations, but that was not the only reason," said spokewoman Theresa Taylor.

Megnablend supplies custom chemical blends to the gas and oil industry, and has products for agricultural companies, with several customers here, she said. Megnablend will open its warehouse with six employees, and expects to employ 30 within three to five years.

• Talisman Energy Corp. of Calgary, Canada, decided to relocate its U.S. headquarters from Long Island, N.Y., to Pittsburgh because of the shale boom. The company leased a 50,142-square-foot building at Pennwood Commons, a two-building complex located in Thorn Hill Industrial Park, Cranberry. It is on track to hire 60 employees.

Many of Talisman's employees transferred to the area and buying homes here or renting apartments, said Hoover of Burns & Scalo.

• Allied Technology Inc., which serves the oil and natural gas industry with equipment used from the wellhead to the refinery, plans to build a $7.5 million facility at the Industrial 70 Park at Fitz Henry, South Huntingdon Township, in Westmoreland County. The company anticipates creating about 100 jobs at the plant within three years.

Allied Technology selected the site about a mile off Interstate 70 because of its proximity to the drilling that is occurring in Western Pennsylvania and West Virginia, and the easy access, said CEO Wendell Brooks. "We did a pretty careful search," he said.

The influx of workers has had a significant impact on local rental apartments in the past 18 month, said Northwood's West. Most available rental space has been leased. Some workers are knocking on house doors, asking if the owner would they like to rent a room there, she said.

Another phenomenon is the use of mobile homes leased to workers, she said.

"We are seeing an influx of families coming from Texas, Oklahoma, Wyoming, Virginia and Kentucky," she said. "These individuals, who usually have families and homes in their hometown, aren't interested in buying here unless they are able to sell their current home and relocate their family."

"We have seen several workers pool their resources and purchase a small house when rentals could not be found," she said.

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