Houston's Five Biggest Challenges
As great as our market is (and it’s pretty darn great), let’s not hide behind rose-colored glasses: Houston’s got issues, too. (The only thing in this world that is flawless is Brad Pitt's face.) For those of you who just can’t wait for our State of the Market Summit (June 12—register here) to get the lowdown, we rounded up some of our biggest obstacles.
Pretty much every expert we talked to mentioned it—our booming population is putting serious strain on infrastructure. (It also explains why the supermarket is always out of blueberries.) CBRE EVP Sanford Criner says Houston’s been operating under significant budgetary constraints, which has postponed needed improvements. Plus, the City has historically opposed most forms of municipal planning. The recent rapid increase in population and construction has made these past omissions more obvious. Sanford’s hopeful that ReBuild Houston will take care of much of the drainage and street infrastructure issues, but says it’ll be a long time coming.
2. Especially Roads
More and more studies are raging on Houston’s traffic. Rice University’s annual Kinder Institute report, released in April, pegged traffic as the city’s No. 1 problem (it’s really growing in residents’ minds—29% of respondents put it tops on the list, up from 21% last year). And just this week TomTom released a report that Houston has the 14th worst traffic in the country; Houston drivers with a 30-minute commute will spend 78 hours a year stuck in traffic. Stanford’s advice? Order Rosetta Stone because “you’re going to have plenty of time in your car to polish up your French.”
3. Acting Like a Kid in a Candy Store
Savills Studley managing director David Endelman (here, left, with colleagues Angela Bonnici and David Finklea at this year's NAIOP awards) says our biggest challenge is staying disciplined. A lot of people are making a lot of money, and one can’t help but be eager to participate. (It's the first lesson of kindergarten: bulls and bears make money, pigs get slaughtered... we went to an alternative school.) However, while overly aggressive underwriting can help you win deals, David says you don't want to be the person stuck without a chair (and instead holding a cost basis that market demand can't support) when the music stops. Will we manage inventory well enough to get through the next downturn without too much of a glut?
4. Too Much Construction
Don't worry, David, we're not talking overbuilding here. Stream senior project manager Scott Thetford (here with Ward Getz’s Steven Ward—the two went to A&M together) says labor is struggling to keep up with the abundance of development, which can impact timelines. Meanwhile, construction costs are rising. (He’s tracked 8% increase year-to-date alone.) But he’s noticed something important…
5. We're Not Just Exxon... Right?
In our last boom (2008), we had $5.1B of construction revenue among the top 25 general contractors in town. In 2013, we had $5.7B underway, but Exxon accounts for more than $1B of it. If you take them out of the equation, our construction market doesn’t look so robust—only four of the biggest GCs are up from their ’08 revenues (you guessed it, Exxon GCs Gilbane and Harvey are two of them). When construction of its campus wraps up next year, it’ll be a mixed blessing. It’ll free up resources (so much of the labor pool is up there), but revenues will most likely take a hit.