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Houston’s Monthly Metrics: November 2016

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.

The worst is likely behind us.  At least that was the sentiment around a panel of economists discussing Houston’s economy.  While the recovery will be slower and longer than previous recessions, barring an unforeseen event, it appears that Houston is beginning to recover.

The focus of the panel, instead, was on how far Houston fell before the change in direction.  An early re-benchmark of the employment numbers by the Federal Reserve Bank of Dallas shows employment numbers from the Texas Workforce Commission will likely be revised down, though how far is anyone’s guess.  Historically, according to Patrick Jankowski, Vice President of Research at the Greater Houston Partnership, Houston has always added jobs in the fourth quarter due to the seasonal jobs available.  Whether the jobs added will be enough to keep Houston employment growth in 2016 positive is hazy.

The Institute for Supply Management’s Purchasing Managers Index continues to show contraction, but at a slower pace as more industries are reporting a flattening rather than a decline.  CenterPoint Energy shows slowing growth across their residential customers, likely a result of fewer multifamily projects, and Infonation is reporting a marked slowdown in auto sales with a forecast of a flattened sales over the next 6-9 months.  All indications are that Houston’s growth has stopped declining and will begin to slowly accelerate in 2017.

CBRE held a webinar last week focused on the Texas markets.  While Houston is trailing behind Austin and Dallas/Fort Worth, as expected, it was reported that in the last six years, Houston added 30 msf of new office construction, the equivalent of 10 empire state buildings or all of Times Square in New York City.  With now over 12 msf in sublease space, and with significantly slower job growth, this market will likely see little new construction for the next five to seven years as all the existing space is occupied.  Likewise, multifamily will continue to slow – delivering an estimated 24,000 units by the end of 2016 and approximately half that number in 2017.  The latest Dodge Analytics report show Houston’s non-residential market is trending about 20% below its pace from a year ago, and 2017 will likely be on pace or slower than 2016 before we see the turn in our industry.