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Houston’s Monthly Metrics: September 2015

The following article originally appeared in the September 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.

With the latest ride from oil prices, the forecasted recovery in Houston has been pushed back to the second half of 2016 at the earliest.  Houston year to date, seasonally adjusted job growth is at 12,000 (July 2015) – well off the pace of the last few years.  While Goldman Sachs, this past Friday, issued a release which still forecasts average oil prices at $50 to $60 per barrel for the next few years, we are hearing of “early retirement” packages being offered to Houston employees as the oil and gas industry prepares for more job losses this coming January through either another round of layoffs, bankruptcies or mergers.

Other industries are beginning to feel the ripple effect of lower oil, with their indices slowing, although still positive.

CenterPoint is tracking approximately 1,000 less temporary poles than a year ago – an indicator of slowing construction.

The office construction market, while significantly slower than a year ago, is projected to slow further, with 5 msf expected to be delivered this year, 4.5 msf next year and currently only 1.3 msf in 2017 with lower rents and concessions expected in the near future, according to CBRE.  Sublease space has continued to flood the market and currently sits at 7.4 msf (3.6% of total market), and is projected to plateau at 10 msf (5% of market) in early 2016.  As a comparison, Chicago, during the height of the great recession, had 10% sublease space, double Houston’s anticipated peak.  So while the market may look bad to Houstonians, it is still faring much better by comparison and Houston is believed to come out of this recession stronger than before it went in.

PKF Consulting has revised their forecast for the Houston hotel market to be down the rest 2015, and to stay down for the next six quarters.  There is an 8% increase in supply coming online next year to prepare for the Super Bowl, not including the convention center hotel set to deliver in early 2017; but until business travel rebounds, this market is likely going to continue to lag.

Single Family and Multi-Family are also both slowing.  With the uncertainty surrounding the Dodd-Frank requirements and the EPA’s clean water battle in the Supreme Court, single family is still on pace to deliver the 28,000 homes this year, but will see a dip of 10-15% over the next 18 to 24 months, according to Metrostudy.  Despite that dip, Houston is still expected to have the tightest inventory across Texas next year.  Multi-family has seen public money dry up, but private money remains strong.  Occupancy across all classes has risen and 20,000 units are expected to be delivered in 2015 and another 16- to 17,000 units in 2016.

While things will certainly be slower than we are used to, the pie should still be big enough for everyone to get a piece.