Fears Of Bust Tinge Energy Boom In Denver

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DAVID GREENE, HOST:

It's MORNING EDITION from NPR News. Good morning. I'm David Greene. Companies that are booming often want prestigious spaces, and this is especially true in the energy industry. The expansion of oil and gas drilling in the United States is having a major impact on the real estate market from Pennsylvania to Texas. It's certainly driving up prices and tightening the market in Denver. From Colorado Public Radio, Ben Markus reports.

BEN MARKUS, BYLINE: One of the best views in all of Colorado is probably from the 47th floor of 1801 California - Denver's second tallest building. From these offices high above downtown you can see the sports stadiums, the vast metro suburbs and most importantly, the towering Front Range mountains. Nick Pavlakovich, a VP with real estate firm Cushman and Wakefield, says clients are mesmerized when they get off the elevator.

NICK PAVLAKOVICH: They almost forget where they are and they just start to walk towards the mountains and really look at the views.

MARKUS: Pavlakovich just leased the floor above this to an oil and gas company from Calgary. Energy companies have closed deals on more than 850,000 square feet of space in downtown Denver in just the last three years. And it's not just happening here. Near the Marcellus shale in Pittsburgh, downtown vacancy is at a 30 year low. And the many energy companies that call Houston home have helped to push lease rates there near an all-time high. Pavlakovich says the industry's growth has been a godsend for Denver landlords.

PAVLAKOVICH: Oh, no question. I mean, it's kind of what kept us out of the downturn that a lot of other cities had. It offered us that kind of, that one industry that kept us afloat and it was growing industry.

MARKUS: And still is. New technologies like fracking and horizontal drilling have opened enormous oil and gas reserves in Colorado. One of the companies taking advantage of that is Houston-based Anadarko Petroleum. It's added 20,000 square feet of space in downtown Denver. And we're talking premium space, like Brad Holly's high-rise corner office.

BRAD HOLLY: It's very nice. I like the ability to look west and see the mountains.

MARKUS: Holly is vice president of operations for Anadarko - a prestigious position - but his office is not special. Geologists and engineers also have big, quality spaces.

HOLLY: If you're trying to figure out how to - a new technique to look at seismic or figure out how to produce oil and gas, you don't need to be listening to your neighbors talk about their kids or their wife over the cubicle wall.

MARKUS: That makes energy companies unique.

HOLLY: So it's nice to have that space to think and to generate ideas and ultimately make money for the company.

MARKUS: And that's what it's all about - making money. Sam DePizzol with the commercial real estate firm CBRE says there's a trend nationally to reduce square footage per employee.

SAM DEPIZZOL: Now energy companies are just the opposite. OK? So what they're after is kind of the traditional use of office space, which are large perimeter offices.

MARKUS: He says unlike any other industry he works for, energy companies are hyper-focused on retaining employees. And those offices are a major perk. More companies wanting more floors with bigger offices have pushed lease rates higher. And now there's talk of launching new high-rise construction projects here. But Sherman Miller, who runs the Real Estate Center at the University of Colorado, Boulder, says the '80s offer a cautionary tale.

SHERMAN MILLER: You had many companies that said Denver's a great place, come in and they built buildings for them, and then people next door said, well, I'll build another building. So it caused this spur of development, and what happened was when the price of oil went down to $20 a barrel, these companies said come back to Houston, come back to Calgary, closed their operations.

MARKUS: Miller says they called the empty high-rises see-through buildings. But back then energy was pretty much the only game in town. It took up more than half the high-rise space. These days it's a lot more diverse: technology, medical and financial companies, they all want a flag in the Mile High City. For NPR News, I'm Ben Markus in Denver. Transcript provided by NPR, Copyright NPR.