The following article originally appeared in the June newsletter to clients of FMI Corporation, for the purpose of providing the latest leading indicators and industry issues to those clients. Reprinted with permission.
Leading indicators and economists agree that Houston is growing again. Employment numbers are up, exports are up, and auto sales are up (a consumer confidence indicator); even oil has seen a recent spike (albeit for how long) in price, which typically bodes well for Houston.
While these indicators are great news for our city, it will still take some time before the construction industry will see the uptick. In talking with contractors, many are already seeing their backlogs much healthier for 2019.
Multifamily is expected to pick up next year, with over 60 properties being proposed, according to Apartment Data Services. With strong rent growth over the last year, developers are scrambling to get things going again. And while Apartment Data Services expects slightly negative absorption this year, as many displaced Harvey victims return home, there is gossip of more deals to come.
CBRE echoed those sentiments, noting that everything is expanding in Houston this year and in 2019, except for office space, which continues to be bogged down by sublease and vacancy issues. There are over 200 proposed properties in the light industrial space, and the Texas Medical Center currently has about $3 billion in construction underway, with more in the pipeline. Retail continues to see asking rents rise, as demand is I strong. The trend of “resi-mercial” office space – space that resembles home life with kitchen and communal space – is expected to continue to expand in Houston, as are shared office concepts and car concepts, like WeWork and ZipCar, which are growing in both popularity and in footprint.
Increasingly a global city, Houston has the largest share of its economy geared toward exports compared to other metros, with exports topping $100 billion last year. This, in part, contributes to the growing bottlenecks for railway and transport across the state. As oil and gas production has risen, so has the cost to transport it, as the capacity of our current railway system is being tested. Unless more capacity is added, we risk the Permian having to curtail its production because the pipeline won’t be able to handle the volume.
Houston’s shift to an export-oriented economy helped us weather the oil downturn much better than in the past but has also made our city more sensitive to what happens in the global economy. The outcomes of the NAFTA renegotiations, tariffs and unrest in the Middle East can all impact Houston’s economy.
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