The Outlook from Houston – The Energy Capital of the World

HOUSTON – Ralph Bivins of Realty News Report: The latest edition of The Ralph Bivins Project podcast, features an interview with Bob Parsley, chairman of Colliers Houston, one of the biggest commercial real estate companies in Texas.

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RALPH BIVINS: We’re here today in the energy capital of the world, Houston, Texas, where oil is $100 a barrel and gasoline is around $4 a gallon. We are here with Bob Parsley, chairman of Colliers Houston, one of the biggest commercial real estate companies in the state. Bob, with oil at its highest price per barrel since 2014 or maybe longer, what does that mean for the real estate market?

BOB PARSLEY: The world today reminds me of the things that we lived through many years ago, when motorists lined up at gas stations for hours waiting to fill up. There’s a lot of uncertainty in the world today. One thing, unfortunately, is the uncertainty in Russia and the Ukraine. With oil prices skyrocketing, it appears that a recession is on the horizon. I don’t think there is any question about it. Consider the activities we are seeing in Ukraine and Russia. For example, 30 percent of the world’s wheat comes from the Ukraine. The Ukraine supplies most of the neon gas and minerals that are used in all the new electric cars. All that activity is being halted because of the war. A lot of source materials for tech comes from the Ukrainian-Russian part of the world. Yesterday, nickel trading was halted on the exchanges. Nickel is found in the Ukraine and Russia.

I think that all these events are creating what will become a recession — right around the corner. Adding to that is an increase in oil prices. The question becomes, how much are we willing to stand? We have already seen increases in transportation costs; food and oil prices are going up. You have inflation that was already there plus the uncertainty which is magnifying this issue. In the end, you have to ask yourself, how does all this impact the real estate market in Houston?

RALPH BIVINS: Oil companies are making a lot more revenue, but they are not ready to hire people like they did or create new headquarters.

BOB PARSLEY: We at Colliers cover a whole spectrum of commercial real estate, so we look at all the different factors. Each one of these will impact the situation differently.

For example, in the office market, we already had a high vacancy rate. Will the cost of oil, regardless of whether it increases or goes down, have an impact on the office market? We have seen energy companies becoming more efficient. When you see increases in productivity, it results from the company becoming more efficient. It’s not that companies are hiring more people. These companies are finding more efficient ways to pull oil out of the ground. I don’t think it will lead to the leasing of more office space.

For the Houston market’s industrial side, activity will continue to increase. For the past year or two, I have been calling this the “Renaissance of Houston’s industrial real estate.” Our business on the industrial side of the market has been unbelievable. Industrial brokers and others in the trade have been the major drivers over the last year and a half. Our company recently hosted an event, and one of the comments that came out – and will likely be magnified – is that during COVID, all conversations centered on the ships that were parked off the Port of Long Beach, Calif. Hundreds of ships. During that same time frame, there were never more than 10 ships offshore on the Gulf Coast.

I believe we will begin seeing distribution patterns change.There will be much more activity coming up through the Central United States and the Gulf of Mexico. That’s good news, and we will continue to see development companies building more and more industrial space. This will not have an impact on the existing vacant space.

You know, 70 percent of the people in the United States live east of the Rockies. So why are we continuing to transport products on that long trek from California when they could come up from the Gulf of Mexico and travel by rail or truck through the central part of the United States?

Another thing that we should at least put on the table is this: I think interest rates are going up – going up in a big way. I see this kind of thing in my office, my home, younger members of my family. In our multifamily business sector, we are seeing a lot more activity in the multifamily apartment business. Young people who can’t afford to own homes have to lease. We see a lot of build-to-lease activity. Corporations are buying thousands of homes in this market.

RALPH BIVINS: Communities of single-family homes and duplexes for lease have yards and other amenities like those of homes that are occupier-owned.

BOB PARSLEY: I like the idea of owning a home, particularly in your later years. If people are forced to lease, it will be hard to build up any value.

Bob Parsley’s bio

A native Houstonian, Bob returned to his hometown after graduating from law school in 1979 to serve as an attorney with Bracewell & Patterson, specializing in corporate law. In 1983, he joined Colliers, where he was one of the company’s principal shareholders. As Chairman of Colliers Houston, he brings a wide range of real estate experience to the table, along with an understanding of the legal issues involved in real estate transactions. He has represented a broad range of corporate clients, both public and private, in office and industrial sales and office leasing transactions in Houston and throughout the U.S.