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Energy Market Construction Costs Update | Q3 2018

Bakken, Delaware, Permian Basins | Construction Costs

construction costs

As U.S. crude oil production continues to increase, construction costs across key shale plays have risen alongside it. This is nothing new, as construction costs in energy markets have always been more expensive than the U.S. average. Why? Building in secondary and tertiary markets comes with its own set of limitations, and they are the same no matter the shale play – labor shortages, low workforce housing, high material costs and limited equipment transportation.

Below find a current boots-on-ground snapshot of commercial real estate construction costs in the Bakken, Delaware and Permian Basins to help provide realistic expenditures for your next development.

  • The Bakken: The oil rich Bakken, which includes main hubs Williston and Watford City, ND, has current construction costs at around $100 per square foot for full industrial builds. The market has seen little to no development over the past year across all asset types, which has contributed to a strong labor force that can handle workload. With 2% vacancy we expect this trend to discontinue, as illustrated by a recent increase in permitting. The next 12 months should once again bring several construction projects coming to core markets which will see an increase in costs.
  • Delaware Basin: In West Texas’ Delaware Basin construction costs are dramatically increasing month-over-month, reaching as high as 30-40% average increase per quarter. In the Pecos, TX area current market costs sit around $175 – $250 per square foot and are expected to increase over the next 12 months. The basin is in the midst of a construction boom across all product types, but primarily in steel industrial assets. The good news is that the basin is addressing its labor availability and housing problem, as we are now seeing workers arriving from nearby Carlsbad, NM and El Paso, TX, as well as an uptick in workforce housing construction.
  • Permian Basin: Further along in its real estate development life cycle than other shale plays, construction in the Permian is mostly limited to high-rises and tenant improvement projects. In the Midland, TX market area costs have been consistently increasing month-over-month and currently hover around $50 – $60 per square foot for TI, $85 – $100 per square foot for steel industrial assets, and $150 – $175 per square foot for full build-outs.

Seeking construction insight for your shale play real estate project? Click HERE for entrenched, knowledgeable support and services.