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Houston’s Monthly Metrics: November

The following article originally appeared in the November newsletter to clients of Kiley Advisors, LLC for the purpose of providing the latest leading indicators and industry issues to those clients.  Reprinted with permission.

Despite a recent dip in oil prices, Houston continues to hum. The Houston branch of the Federal Reserve Bank does not see an effect from the lower oil prices on the Houston economy, as long as we stay above $75 per barrel and there are no unexpected outages, because there is a shortage of space for any surplus capacity that would need to be stowed during an outage.

And, additional good news is the Houston unemployment rate is now below 5% with construction jobs driving the number down. After a large increase in jobs in August, construction added another 1,700 jobs in September, which puts the industry roughly 7,000 jobs shy of our 2007 peak. Auto sales also continue to outpace 2013, which suggests a new record will be set at year end, according to Infonation. Currently, the twelve month rolling sales level is 374,000 units, and there is a sense of stability returning to this market going forward. As a consumer confidence indicator, this bodes well for Houston.

Also boding well, is the CBRE third quarter report. The retail market remains hot, with 6.6% vacancy, 2 msf under construction and nearly 1 msf delivered in the third quarter. While rental rates remain flat YoY, several areas (Woodlands, Cypress, Galleria, etc.) have 100% occupancy. In the office market, CBRE believes the overall activity level is expected to remain constant, despite the rising rates. In the third quarter, there were 47 projects under construction totaling 17.2 msf, 67% of which was pre-leased. CBRE noted that absorption numbers are expected to decline going forward as most of the larger tenants have signed their big deals in recent years. The industrial market continues to thrive, with a 5.3% vacancy rate and over 6 msf under construction (70 buildings). This puts the year to date delivery of industrial product at 10.3 msf.

The Architecture Billings Index remains well above 50 for both the US and southern region, 55.2 and 55.3 respectively, and the project inquiries is up to 64.8, suggesting there are still a large number of projects being discussed and considered. The City of Houston permit numbers continue to vastly outpace 2013’s numbers, currently up 60.4% when compared to a year ago. However, contractors are seeing price increases, both for materials and labor, which means is putting upward pressure on the owners. The national average hourly earnings for all construction employees rose 2.3% YoY, the largest jump since 2010, and the tight labor supply is only expected to intensify. When you compound Houston’s robust commercial construction market with the booming industrial and residential markets, it is likely to drive much greater wage increases locally.

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