HOUSTON (Commentary by Ralph Bivins) – Houston’s real estate markets sustained some ugly wounds as the price of oil dropped from $107 a barrel in June 2014 to below $30 a barrel earlier this year. While the Houston office market declined, other sectors, such as retail and industrial real estate were great. And overall, existing single-family home sales have been outstanding.
Next year will be a mixed bag as well. Here’s a look at the Good, the Bad and the Ugly of 2017 in Houston – the Energy Capital of the World.
Rex Tillerson – Exxon Mobil’s CEO Rex Tillerson is reportedly Donald Trump’s choice to be Secretary of State. To lead the EPA, Trump’ selected Oklahoma Attorney General Scott Pruitt, who is considered a friend of the energy industry. The two appointments (and former Gov. Rick Perry is on the short list to be Secretary of Energy) indicate that Trump will be supportive of oil & gas. Tillerson should be in favor of the Keystone XL pipeline, which will cross the Canadian border and end up in the Houston area. The pro-energy sentiment of the Trump administration will be a boost for Texas economy. (Although Tillerson did no favors for downtown Houston, when Exxon Mobil uprooted its people out of its 1 million SF skyscraper and headed for the northern suburbs.) For Houston job growth, this looks real good.
Houston Apartment Market – Some 40,000 new apartment units have been completed over the last two years. And at least another 15,000 new units will come online in 2017, according to Transwestern. The real softness is in the Class A market, while Class B and C are fine. Some new multifamily projects are offering as much as three months free rent. The Class A occupancy rate has fallen to 80 percent and it’s going lower. The rough patch should be over in 2018, as new construction comes to an end. Some strong job growth would do wonders for Houston’s multifamily, but it may take a while for the Trump/Tillerson effect to translate to new jobs.
The Energy Corridor – Recently named by JLL as the nation’s leading submarket for sublease office space, times are tough in this west Houston district. A couple of years ago, the Energy Corridor had 99 percent occupancy in its Class A space. After the energy bust pounded the office market, the availability rate soared to near 30 percent. Some of the Energy Corridor sublease supply has been taken off the market by ConocoPhillips’ recent decision to move from its old campus to the new, but vacant Energy Center Four, a 22-story building. Overall – all classes of space – the Energy Corridor has over 5 million SF of available office space, according to Transwestern’s recent TrendLines report. Downtown Houston, with the departure of Shell Oil, has its sublease space problems as well. Even with the recent gains in oil prices, more sublease space is coming and more energy-related firms will be headed into bankruptcy before it’s all over. Maybe the market will get lucky and Santa will bring the Energy Corridor a massive corporate relocation for Christmas. It would sure help.
Dec. 12, 2016 Realty News Report Copyright 2016
Commentary by Ralph Bivins, editor of Realty News Report, a Texas-based publication.