3 Reasons This Won’t Be the ‘80s
Whatever happens with oil prices over the next 12 to 18 months, Houston won’t crumble into fetal position like it did in the ‘80s. But our market will be (and is already) changing from energy’s slowdown, which we’ll go into at Bisnow’s Impact of Oil and Gas event Feb. 26. (Register now!)
Greater Houston Partnership regional economist Patrick Jankowski (a panelist) sees cause for concern but not fear. The Purchasing Managers Index slipped below 50 for the first time in four years, signaling contraction in production in coming months. Office and industrial sublease space is rising, and multifamily is overbuilt inside the Loop. Patrick thinks there’s enough momentum from last year to carry Houston through the middle of 2015, but the outlook is less certain after that. Any downturn will be short-lived—he forecasts we’ll pick back up in late 2016, and long-term he’s upbeat about Houston.
Patrick (here with Crossbeam/Concierge Management Services' Jenifer Paneral) laid out three ways Houston looks different now than in the legendary oil bust. 1) We’re not overbuilt in office, industrial or housing. 2) Our banking system is better. 3) The US economy is healthier than it was in the ‘80s. Real US GDP growth above 3% stimulates Houston’s growth, and it’s been over 3.5% four out of the last six quarters.
TNRG president Mike Spears, another panelist (pictured with his wife, Tiffany, on a skiing trip last month), says it’s too simplistic to say energy is struggling, and thus Houston will struggle. Dropping oil prices are obviously hurting upstream/exploration companies, but downstream players are thriving and should absorb some employee layoffs from the upstream side. Similarly, many manufacturers that have typically done work for the Halliburtons and Schlumbergers of the world will start selling their equipment, products and services to downstream players. Transportation and trucking companies are doing very well with lower gas prices, and while industrial activity may slower in some submarkets such as Northwest and West Houston, the new activity in East Houston will fill the void.
Even considering the negative impact of oil prices, Mike isn’t changing his advice to clients. In peak times and in slumps, developers should look at fundamentals and keep an exit strategy in mind, he says, and they should design to a target tenant, but build as generic as possible to ensure they can accommodate multiple industries. For example, upstream groups typically like crane-served facilities with large yards. Although developers may want to build fewer crane-served buildings for a few years, Mike suggests staying crane-ready with higher eave heights to ensure that you are prepared for the energy sector’s rebound, which will inevitably come in the near future. When it does, the market is likely to increase rapidly and those that adhere to these principles will reap the benefits, he says. Pictured, Mike and Tiffany are with their twins Emily and Luke. Come hear more from our experts Feb. 26 at 7am—register here!