Houston Job Growth – What Does it Mean?
January 12, 2016
by Mark Daniel, Vice President of Partner Relations at RealMassive, A.B. Economics Stanford University
“Most exposed to the downturn in crude oil prices is Houston office, where energy companies occupy more than half of the central business district office space and most of the space in the Energy Corridor.” Jeffrey Havsy, an economist with commercial property firm CBRE to Dallas Morning News.
Viewing the animated map below you can see the 12-month net change in total employment from +90,501 in Q1 of 2014 (as of March) to -56,510 in Q4 of 2015 (as of November).
Map courtesy of Project Atlas, a visualization platform designed specifically for commercial real estate research. Click Here for more information or a demonstration.
Job growth impacts all property types, most notably apartment which has been on fire in Houston for several years. Now we are set to deliver tens of thousands of units unto a market with significantly decreasing demand.
The subtitle of a recent Texas Monthly article read, “Don’t be fooled by claims of economic diversification – the city still runs on oil.” Of course this is the same warning we hear in every cycle, but the correlation certainly isn’t what it once was.
Houston was already headed to the top of its normal real estate cycle when $40 oil gave it a nudge down a little sooner than would have been the case at $100 oil, but tempering a boom is not always a bad thing. Units and square footage will be absorbed, though at a slower pace.
What’s being built will be delivered, but capital will be hesitant to engage in speculative construction thus tempering the pipeline. This is a cycle, not a disaster.
Could it become one? Of course – especially if the U.S. economy softens. But it’s also possible that Middle East tensions will herald the end of $1.57 per gallon gasoline in Lampasas (as of this morning). Builders may have underestimated the risk somewhat, but this was not a “hair on fire” type of overbuilding we’ve seen in previous cycles (granted, it could be argued that class A apartment got pretty close, especially in a few of the downtown submarkets).
Houston has been through this before. While we tend to love to overbuild into a good story here in Texas, that doesn’t appear to be what happened this time around.
I’m not trying to minimize the impact of $40 oil here (now $31), just observing that the sky is not falling for commercial real estate. Today.