November 8, 2016
Houston’s economic story has been sluggish due to volatile oil pricing. But is the news really as bad as it seems? To learn more, Amy Wolff Sorter chatted with Transwestern’s Kevin Roberts to obtain some clarity about office space, jobs and other factors in the Bayou City.
Q. At the beginning of 2016, experts suggested Houston would continue feeling the oil price decline effects for most of the year. Now that we’re in the final quarter, would you say that’s been the case?
A. Without question, we are still feeling the effects of the decline. We will continue to feel the impact of the energy industry’s restructuring for several years, especially for owners of office buildings or multifamily properties. The energy industry reset will also impact retail and even industrial, to a certain extent, as the migration of jobs from high-paying energy and engineering jobs to lower-paying service jobs has taken a meaningful amount of purchasing power out of our Houston economy. Having said that, compare this downturn to any in the last 30 years and you see that Houston’s economic diversification has made it remarkably resilient. We’re still adding jobs, which is a complete contrast to previous downturns. This recovery will bounce along the bottom for some period of time, but we have certainly seen the worst of it.
Q. Have commercial and industrial markets bottomed out in terms of sublet space? Along those lines, are some submarkets doing better than others?
A. The story may not be completely written for office space, as shadow space still exists. Houston has more than 12 million square feet of office space available for sublease right now, which is 66% more than this time last year. Owners in the west Houston markets will be dealing with a demand issue for the next several years. Also, certain industrial markets are feeling the effects of significant new sublease space supply, primarily north Houston.
Q. What are some of the economic bright spots in Houston?
A. Houston has so much going for it. We are a leading international city that embraces its status as the most diverse city in the U.S. We are bullish on every sector of our economy. Healthcare is, and will continue to be, a leading contributor to Houston’s GDP. Texas Medical Center continues to expand, especially in the biotech arena. The life science and biotechnology companies are attracted to the massive clinical footprint and patient data that goes with it.
And the port is a gem for our city. The leadership of the Port of Houston is making the forward-looking decisions to maintain Houston as a significant player in world trade. From a real estate perspective, everyone has or desires to have a port strategy, and it is viewed as a very stable long-term play.
Additionally, retail in Houston is still performing well. Retail space is at its lowest vacancy in history, with grocery and mixed-use centers leading the pack. A lack a new supply has driven rents up, but we have 3.2 million square feet in the pipeline driven by the Grand Parkway expansion. We are adding more retail jobs than in previous years, and sales remain solid.
For comments, questions or concerns, please contact Amy Sorter