Houston Economy Rebounded After Oil Slump, Economist Says
Bill Gilmer
HOUSTON – (By Michelle Leigh Smith for Realty News Report) – Houston’s economy has rebounded from the downturn and is steadily moving forward, economist Robert W. “Bill” Gilmer reported during the C.T. Bauer College of Business Institute for Regional Forecasting symposium held at the Hyatt Regency.
“We’re in good shape in Houston,” Gilmer said, pointing out that oil prices and rig counts have risen over the past year.
He highlighted strength in industrial real estate and warehousing.
“The Houston industrial market is firing on all cylinders,” Gilmer said. “Upstream, downstream and e-commerce are all contributing. On the Eastside, downstream activity and general container traffic through the Port of Houston continue to grow, with a notable increase in shipments of plastic pellets. Exports of oil and oil products have opened new growth channels. Industrial and warehousing activity has rebounded with oil around $65 a barrel, and last-mile warehouse distribution driven by e-commerce is supporting the west and northwest areas. Amazon may seek distribution centers in other parts of town to offer same-day service.”
Gilmer outlined an economic forecast built around three oil-price scenarios: high, medium, and low. The high scenario assumes $80 oil and potential political disruptions to supply; the medium scenario assumes roughly $65 oil in 2018, with drilling moderated by producer discipline or limited overproduction; the low scenario imagines OPEC resuming the role of swing producer and prices falling toward $40 a barrel. He added that the strong momentum from the fracking boom years has faded and that some of the post-Hurricane Harvey job gains may ease. Oil prices have remained above $60 per barrel for months, a substantial rise from the early-2016 lows below $30 per barrel.
Houston Office Market: Gilmer believes office vacancy rates have likely reached their low point and are beginning to improve, though the market still has a long path to full recovery.
Retail: The retail sector is seeing rising rents and low vacancies. Recovery from Hurricane Harvey coupled with higher oil prices helped drive a strong retail rebound in 2018.
Apartments: “With units damaged by Harvey removed from supply, the Harvey-driven absorption phase is over. Class A occupancy is back around 92 percent, and overall occupancy is near 90 percent,” Gilmer said. “Occupancy bottomed at 88.1 percent in March 2017 and climbed to 89.5 percent through March 2018. A final residual effect is expected in Q3 of this year as 12-month Harvey-era leases expire. Since May, occupancy has been essentially flat and close to 90 percent. Incentives still exist in many properties, but offering more than a month of concessions is uncommon except for high-rise buildings.”
He also noted the apartment construction cycle has resumed. In a medium-growth scenario, annual absorption is roughly 12,000 units. Permit activity over the past six months corresponds to an annualized rate of about 16,000 units.
“According to Apartment Data Services, of the 47,000 units that will need to be absorbed in the future, 9,000 have recently opened, 11,000 are under construction, and 26,000 are proposed,” he said.
