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Houston’s Monthly Metrics: January 2016

The following article originally appeared in the January 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.

21,900.  That is the amount of expected job growth in Houston in 2016, unveiled by Patrick Jankowski, Senior Vice President of Research at the Greater Houston Partnership (GHP), on December 7th at their annual economic outlook event.  When compared to the past five years, 2016’s forecast is a significant slowdown in job creation.  Jankowski compared it to our own freeways, noting that after speeding outbound on I-10 at 90 mph towards San Antonio, when you hit a construction zone and are forced to slow down to 20 mph, it can feel like you’re standing still, despite continually moving forward.  That construction zone pace is Houston’s future next year.  Slow, but moving forward.

For the construction industry, with the exception of the industrial market which continues to thrive, this slowdown may be just what the doctor ordered.  The frenetic pace of 2014 left many understaffed and turning away work.  Good work.  Work that, any other year, they would be ecstatic to have.  Our industry is expected to slow in 2016, but rather than the 20-mph pace Jankowski outlined for Houston overall, we may be more like a small town speed trap of 45 mph – not so slow that we feel as though we are standing still, but noticeably slower than a year ago, and slower than 2015.  2016 may be the restorative year our industry needs, giving contractors a little breathing room, to assess the significant growth they have experienced and backfill their organizations to prepare for the more prosperous years ahead.

To be sure, construction will not be dead in 2016.  While you will see less mega-office projects (i.e. Exxon, Generation Park), the smaller projects are still going strong and the large amount of sublease space should spark some renovations.  Multi-family continues to build, and, depending on who ask, is already overbuilding.  This segment should also slow in 2016.  Retail, however, continues to do well and medical, K-12 and higher education all have a high demand, so these four are expected to be stronger in 2016.

The biggest hurdle will continue to be the workforce.  The heavy industrial projects are expected to need 8,000 – 10,000 additional workers on site next year, according to a GHP survey, which will only further strain our industry and continue to drive the increases in labor costs.  Increasingly, contractors are being forced to pay a premium or develop a training program within their ranks to stay competitive and safe.