‘Cowtown’ benefits from its rich underground natural gas reserves, but is the economic well running dry?
While the livestock trade is part of Fort Worth's rich heritage, the present and future vitality of the city and its commercial real estate markets lies in the oil and gas business.
Fort Worth sits on the largest natural gas deposits in the world, known as the Barnett Shale. Production from hundreds of gas wells over the past decade has helped keep its economy pumping.
“Energy companies have acquired and leased large blocks of space, muting the effects of the economic downturn in Fort Worth and compensating for the contraction of other companies within the market,” says Bob Scully, senior vice president in the Fort Worth office of CB Richard Ellis.
But Fort Worth also sits on a precipice of sorts. Gas prices fell from more than $13 per 1 million British thermal Units (BTUs) in July 2008 to around $6 per million in January 2010, pressuring many energy firms in the local office market.
As an economic engine, the Barnett Shale generated $11 billion of financial stimulus and 111,000 jobs in 2008. A recent report by Texas economist and local forecaster Ray Perryman says despite a downturn in energy prices, Barnett Shale still accounted for $6.8 billion in stimulus and 70,000 jobs in 2009.
Perryman believes the past economic benefits will continue to prop up the area. “The development of the Barnett Shale has diversified and strengthened the Fort Worth-area economy in fundamental ways.”
Still, economic conditions in the nation's 17th largest city have deteriorated lately. Fort Worth's unemployment rate stood at 8% in November 2009. That's down three-tenths of a percentage point from the previous month, but substantially higher than the 5.7% rate of a year earlier, according to the Texas Workforce Commission.
Sales tax revenues have been on a steady decline too, down 7% in January 2010 from a year ago. That compares favorably with Dallas, with tax collections down 20.5% from a year earlier, and Houston, down 18.5%.
So far, office rental rates are holding up in Fort Worth better than other submarkets in the Metroplex. Fort Worth's CBD vacancy rate stood at 15.9% at year-end 2009 compared with 28% for downtown Dallas, according to CB Richard Ellis.
All about the shale
Since 2001, Fort Worth has been the focus of the largest gas-drilling boom in the country, given that the Barnett Shale natural gas reserve crosses a 15-county area. It contains roughly 55 trillion cubic feet of natural gas and is located about 1.5 miles below the surface.
In recent years, advances in drilling technology have made it more economically feasible to extract large amounts of natural gas from the hard shale deposits.
To say that natural gas has permeated every pore of Fort Worth's economic fiber would be a gross understatement. Once the shale was discovered, gas wells sprang up wherever there was vacant land — parking lots, country clubs, even schools. It is not uncommon to see gas pipelines running across residential front yards near downtown.
Oklahoma City-based Chesapeake Energy is the largest player in the Barnett Shale and the nation's largest independent natural gas producer. In early 2008, Chesapeake made its local presence known when it became the largest energy-related tenant in downtown Fort Worth.
Chesapeake's purchase of a 20-story office tower for $104 million from retailer Pier 1 Imports was the largest acquisition price in CBD history. The firm occupies half of the tower's 460,000 sq. ft., and also leases 120,000 sq. ft. in nearby buildings in Sundance Square.
Family ties that bind
The largest owner and manager of commercial real estate in Fort Worth is Sundance Square, founded in the 1970s by the local Bass family, which made its wealth in the oil and gas business.
The Sundance Square development includes 42 buildings occupying 40 city blocks in downtown Fort Worth with a mix of office, retail and residential uses. According to Johnny Campbell, CEO of Sundance Square, office occupancy within the development is 94%.
“This market has never really been volatile,” says Campbell. “Sundance Square owns and manages 50% of the office space in the CBD. Our strategy for being conservative about the way we plan and build is a part of the reason that the market itself enjoys stability.”
Sundance's latest addition to its office inventory was the Carnegie, a 16-story, 280,000 sq. ft. office tower that opened in 2009. It finished the year with 77% occupancy, thanks to signing tenant Houston-based EOG Resources, an oil and gas exploration and development firm.
“The energy sector that injected life into our economy meant that our office market was very tight,” says Campbell. “It created a micro economy in this area that was pumping strength into this market while the rest of the nation seemed to be waffling.”
However, Campbell says the benefits from the Barnett Shale on the local economy aren't quite what they used to be. “We are gliding across a little canyon and our altitude is really good, but we don't have the same horsepower we had when the shale was really pushing us along.”
Certainly some changes are in the forecast. CB Richard Ellis predicts continued downward pressure on occupancy and rental rates through 2010, with a 4% to 5% decline in Fort Worth's CBD rental rates and a rise in vacancies to 18%.
Also, a new report from the International Energy Agency predicts that natural gas prices will continue to drop in the coming years due to falling demand.
In December 2009, Chesapeake said it was slashing its nationwide natural gas production budgets by $3 billion over the next two years. “We've been concerned about gas prices in the U.S. doing a double dip,” Chief Financial Officer Marc Rowland told a conference in London on Jan. 11.
Chesapeake sold off a 25% stake in its Barnett Shale exploration to Total, a petroleum conglomerate based in Paris, France, in January 2010.