Commentary by Ralph Bivins. (Originally published on March 1, 2021 in the RNR newsletter)
Houston – the Energy Capital of The World – survived tough times before.
What was the worst? The flooding from Hurricane Harvey in 2017? The wild overbuilding, the failure of financial institutions, job losses and the oil bust of the 1980s?
Or the pummeling of last year when the coronavirus shutdowns hurt retailers, hotels and landlords of every ilk. And that was punctuated with an unprecedented oil crash that took the price of West Texas Intermediate crude below zero in April. Oil companies announced widespread layoffs. The list of bankruptcies is long with local energy firms and retailers showing profound weakness.
Overall office vacancies soared last year to near record highs, although the newer Class A buildings and significantly renovated properties fared better. The Houston apartment market has rough spots and another 20,000 multifamily units are under construction.
How could it get any worse?
Well, it won’t.
This is March 1, 2021. I’m calling the bottom right here, right now.
The Houston real estate market is turning the corner. It’s hit bottom. Things are going to get better from this point forward.
I’m not talking about a straight-up, fiery skyrocket of a recovery. The road will be rocky and the bottom will be jagged. But Houston real estate is improving again and we may be surprised at how soon it happens.
One: Covid is being defeated. Some 50 million Americans have received at least one vaccine shot. Johnson & Johnson has received federal approval for its vaccine and J&J shots will be given immediately. The vaccination pace will be picking up. Covid won’t be eradicated, but it won’t be long before restaurants, hotels and airlines are contributing to economic recovery.
TWO: Oil is back over $60 a barrel. Oil companies will not be hiring en masse because of it, but $60 pricing could serve as a tourniquet to stop the bleeding at some companies. Ugliness covers the energy business and we can’t forget that Exxon Mobil lost $22 billion last year – its first annual loss in 40 years. But we know more travel and less work-from-home will add to energy consumption. It’s a safe bet to say energy will be better in April 2021 than in April 2020 – and that’s a plus for Houston.
THREE: Houstonis one of strongest housing markets in the nation. Builders and Realtors are busy. Last year was the best year ever for existing home sales in Houston. On a national level, home construction is hot – single-family sales are churning at a rate of 953,000 (annualized) – a huge increase over about 300,000 sales 10 years ago. In Houston, land brokers say demand is high for residential parcels. The Federal Reserve remains on a path for continued low rates. Mortgage rates around 3 percent will continue to drive the market.
FOUR: The Life Science sector is promising for new growth and the Texas Medical Center is a powerful anchor for that. The $1 billion Levit Green life science district is under construction on Holcombe Boulevard by Hines and 2ML. The TMC3 project at the medical center will yield some positive benefits. With a help-wanted billboard on Loop 610 the Lonza gene cell facility in Pearland announces it is seeking workers in the pharmaceutical and biotechnology fields.
FIVE: Industrial real estate is strong in Houston, which has 19.4 million SF under construction. According to Cushman & Wakefield, that’s second in the nation, behind only Dallas-Fort Worth. Overbuilding? Maybe not. In 2020, Houston had 11.8 million SF of industrial leasing, the third highest total in the nation. Amazon is a behemoth absorbing large gobbles of distribution space at a rapid pace.
Economists say 2021 will bring positive job growth to Houston, which is also known Space City.
Government officials closed down the Houston Rodeo on March 11, 2020 – a Covid slap in the face. For many Houstonians that day marked the beginning of the pandemic.
Last year was dark. But we are pulling out of the muck. Tomorrow will be better. The tide has turned.
(Commentary by Ralph Bivins. Originally published March 1, 2021 in the RNR newsletter.)
March 12, 2021 Realty News Report Copyright 2021
Downtown Houston: Photo credit: Ralph Bivins. Copyright 2021