Pat Kiley presented Kiley Advisors, LLC’s Houston Economic Forecast, How Long Will the Momentum Continue? with special focus on the Construction, Real Estate, Oil & Gas, and Finance sectors at the annual Adams and Reese, LLP Crawfish Boil held on May 7, 2015 at the Goode Company’s Armadillo Palace.
Kiley opened his remarks by explaining that although he and his partner, Candace Hernandez, are not trained economists, they are in touch with many contractors and they attend many events to learn in what direction the construction industry is heading. One such event they recently attended was the Transwestern and Delta Associates Research Conference in Houston where economist and actor Ben Stein. They learn from many sources and then analyze what the information means for Houston.
Kiley shared that 70% of greater Houston’s employment base is made of companies in the energy industry, companies that sell across the United States and internationally. The average annual salary for these jobs is $185 thousand, while the average salary of other area jobs is much less at around $65 thousand. The recent downturn in the energy industry was therefore quite significant for the Houston economy.
The energy industry is described as being divided into upstream, midstream, and downstream sectors. Upstream is “where they get [the material] out of the ground” – upstream is exploration and production. Midstream is transmission and storage of the material, and downstream is where the material is converted into other products. Kiley stated that demand for energy products is currently dropping while production is increasing which is causing the price of the products to drop. However, the United States is currently producing less than one percent more barrels than is needed, so some economists don’t believe that this situation is as bad as it was at first predicted to become. It was interesting to hear his description of Saudi Arabia’s decision to continue full production in spite of the declining need worldwide.
Kiley then addressed the retail space market in the area. He said:
“As many contractors in this room know, general purpose office space projects have been delayed, put on hold indefinitely, or in some cases cancelled. Light industrial warehouse space – which serves the exploration companies but also serves the expansion of the Panama Canal warehouses and the downstream energy companies – will not have a market loss yet.”
Some have asked whether the latest economic downturn will be a repeat of the downturn in the 1980s. Kiley outlined the ways in which this downturn is different, including the fact that unlike in the ‘80s, Houston is currently creating more job opportunities, according to data from the Greater Houston Partnership.
Kiley talked in detail about the expected trends both for the Houston economy, but also for regions all over the world. Most markets, including Houston, are expected to grow slowly – “at a walking pace” – with only a few exceptions such as fast-growing Papua New Guinea.
Still, Kiley noted that Houston has recently been named one of America’s “Fastest Growing Cities” by Forbes magazine.
About the quality of talent being hired in the Houston area, Kiley said, “In our industry it couldn’t be better that the ‘War for Talent’ is continuing to have people change their spaces.”
He talked about the housing market as affected by the “YOLO” generation (You Only Live Once), some of the largest industrial projects slated for the area, highway projects, approved school construction projects, huge church projects, favorable metrics in retail, medical space, the ExxonMobil campus just north of Houston, and “disruptive innovation” such as prefabrication and modeling software.
He concluded by comparing Houston with the Houston Symphony’s energetic new conductor, Andrés Orozco-Estrada:
“Thirty-seven [years old], brilliant, conducting orchestra since he was 15. Bilingual and full of energy. That’s us, and that’s our future.”
Following Kiley’s presentation, the gathered crowd of business executives was treated by Adams and Reese, LLP to a generous spread of food and drinks including freshly boiled crawfish and Goode Company’s famous barbeque brisket.
You can watch excerpts from Kiley’s presentation on the energy industry and Houston’s construction forecast in the 5½ minute video below.
