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Houston’s Monthly Metrics: March 2016

The following article originally appeared in the March 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 tone is turning decidedly more negative when discussing the outlook for Houston.  Local economists are anxiously awaiting this Friday’s revisions to the 2015 employment numbers, to determine whether Houston did indeed gain jobs last year.  Either way, the leading indicators are not good.  The rig count has continued to decline, now nearly 75% lower than it was in September 2014, both nationwide and in Texas, according to Baker Hughes.  And at $30 oil, no one, not even the stripper wells, are making money, according to Jesse Thompson, Economist at the Houston Branch Federal Reserve Bank.  The reason, he notes, for the increased production is that drillers are now focusing solely on their most productive areas.  The Purchasing Managers Index and multifamily permits are also down.  Add the recent announcement of CBRE of 10 msf of sublease office space now on the market, with at least another million in shadow space (space leased but underutilized) that will likely be subleased.  And after no real fall off in consumer retail sales tax in 2015, Dr. Bill Gilmer, director of the Institute for Regional Forecasting at the University of Houston, stated that 2016 is the year Houston consumers catch the “flu” of low oil and begin spending less.

However, all is not gloom and doom.  Chemical activity continues to boom in East Houston.  Single family permits are steady, and the first six weeks of data on new sales has performed better than the expected 10% decline by Metrostudy.  Retail demand is strong and is expected to continue, as is light industrial.  In fact, a big push in recent years for distribution centers is creating a global distribution hub in Houston.  The Grand Parkway is completed and open from 59 South to 45 North, with a flurry of development planned along this new passageway.  And while multifamily may be overbuilt, Metrostudy’s analysis of whether it is better to buy or rent coupled with the perceived pent up demand show that multifamily should be able to absorb those units by the end of 2017 and get back to construction in 2018.

The second half of 2016 will begin to test contractors and 2017 may be a little painful, but by making the necessary strategic decisions today, contractors can insure that they, and their team, will be there to bid the jobs of tomorrow and do the work more efficiently than their competitor.