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Houston Economy Recovered From Oil-Based Ailment, Economist Says

Bill Gilmer

HOUSTON – (By Michelle Leigh Smith for Realty News Report) – The Houston economy has recovered from its economic downturn and is moving forward again, said economist Robert W. “Bill” Gilmer, speaking at the C.T. Bauer College of Business Institute of Regional Forecasting’s symposium at the Hyatt Regency Hotel.

“We’re in good shape in Houston,” said Gilmer, noting oil prices and rig counts have increased over the last year.

Gilmer praised the industrial real estate and warehousing business.

“Houston Industrial market is hitting on all cylinders,” said Gilmer. “Upstream, downstream and E-commerce. On the Eastside in the downstream arena, general container traffic through the Port of Houston continues to grow, but with a big push from plastic pellets. Oil and oil product exports have opened new avenues for growth. Industrial and warehousing activity has bounced back with $65 oil and the “Last mile” warehouse distribution from E-commerce helps the west and the northwest areas. Amazon may want to have distribution center in other parts of town in order to fulfill same day service.”

Gilmer presented an economic forecast based on three oil price scenarios: high, medium, or low, with the high based on $80 oil and political disruption to oil markets; medium sees 2018 with $65 oil and drilling capped by producer discipline or over-production; low is OPEC again pulling out as swing producer and $40 oil prices. He says the momentum from the fracking boom years is gone and he expects some of the post-Harvey job push to dissipate. Oil prices have been above $60 a barrel for months, up significantly from a low point below $30 a barrel in early 2016.

The Houston Office Market: Gilmer believes office vacancies have probably hit bottom and are on the way to improvement, yet with a long way to go for a healthy market.

Retail: Rising rents and low vacancies continue in the retail sector, with Harvey and the rising oil prices generating a big retail bounce in 2018.

Apartments: “With the Harvey-damaged units removed, Harvey-driven absorption is over and occupancy is back at 92 percent for Class A, and at 90 percent overall,” Gilmer said. “Occupancy bottomed out at 88.1 percent in March 2017 and surged to 89.5 percent through March 2018. A final echo is being felt in Q3 of this year, as 12-month Harvey leases roll over. Occupancy has been flat since May and near 90 percent. There are still plenty of buildings with incentives, but more than a month is rare except for high-rise buildings.”

He noted that the apartment construction cycle had restarted, with the number of units absorbed each year in a medium forecast at around 12,000. Permitting over the past six months is at 16,000 units at annual rates.

“Apartment Data Services says of the 47,000 units that will need to be filled in the future, 9,000 have recently opened, 11,000 are under construction and there are 26,000 proposed,” he says.

Nov. 7, 2018 Realty News Report Copyright 2018

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