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Houston’s Monthly Metrics: June 2015

The following article originally appeared in the June 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.

The Census Bureau recently announced Houston as one of the top ten population gainers in the US in 2014, alongside several other Texas cities.  Unfortunately, that distinction will likely not be repeated in 2015, as economists continue to lower their projections for our region.  Dr. Bill Gilmer, with the Institute for Regional Forecasting, recently released his revised forecast with two scenarios.  The first has oil prices recovering by the beginning of 2016, and puts Houston’s job growth at 13,000 jobs for 2015.  The second scenario has oil prices recovering in mid-2016, which puts Houston’s job growth at 13,000 jobs for 2015 and again for 2016.  After experiencing over 100,000 jobs added in 2014, Houston’s growth has certainly stalled.

Construction continues at a steady pace, but the drop off is coming.  The most recent City of Houston permits show a drop of more than 20% in new non-residential construction when compared to a year ago.  Renovation work continues to exceed 2014 levels, but the drop in new construction is a combination of unsustainable levels of construction in some markets in 2014 normalizing, along with the uncertainty surrounding the oil prices and its impact on Houston.

CBRE’s first quarter multifamily report was recently released, and occupancy remains above 91% with nearly 26,000 units under construction, but we have heard reports that labor shortage are causing major delays on projects and concessions beginning to be offered.  Additionally, reportedly over 50 properties slated for multi-family development have fallen through, and those properties are being scooped up by retail developments instead which remains strong, with grocery and restaurant anchored sites.  Additionally, the millennials preference for experiences is driving entertainment development (indoor skydiving, studio movie grills, panic rooms, etc.) in the retail market.  Meanwhile, the office market is reporting a slow down as now 2.8 msf of sublease space has come onto the market since the beginning of the year, and rental rates are expected to begin a decline if the trend continues as expected.

Schools continue to be very strong with another $1.3 billion approved in school bonds during the May election.  This brings the total school bonds passed in the last 18 months to $4.5 billion in addition to the HISD $1.89 billion bond that is just getting underway.  Medical is also expected to be strong over the next few years and relatively unaffected by oil prices.  And just this week the Houston Chronicle reported on the massive amount of work on the northeast side of town as developments like Generation Park are underway.  There is still work to be had in the city, but 2016 is looking less optimistic.