Houston – Transwestern today announces it held the 16th annual Houston TrendLines® event on Nov. 9 at the River Oaks Country Club in partnership with its sponsors, Chicago Title Commercial, D.E. Harvey Builders, JPMorgan Chase & Co., Kirksey Architecture, Amegy Bank and Locke Lord LLP.
More than 500 people attended the event in which Greater Houston Partnership Senior Vice President Patrick Jankowski gave an economic overview highlighting forward-looking trends and opportunities in the Houston commercial real estate market.
The keynote speaker was Tucker Carlson, the new host of “Tucker Carlson Tonight” on FOX News Channel and the founder of The Daily Caller, one of the largest and fastest growing news sites in the country. Tucker’s primetime show will debut this Monday, November 14. A seasoned journalist, Carlson has also hosted shows on MSNBC, CNN and PBS, and is a longtime newspaper and magazine writer as well. Previously, he was the co-host of “Crossfire” on CNN, as well the host of a weekly public affairs program on PBS. Carlson has reported from around the world, including dispatches from Iraq, Pakistan, Lebanon and Vietnam. His most recent book is entitled, “Politicians, Partisans and Parasites: My Adventures in Cable News.”
“TrendLines allows us to share with our key clients and friends of the firm our analysis of the driving forces behind Houston’s real estate market while comparing it to other top-tier markets, as well as forecast trends that will impact the local commercial real estate market,” said Transwestern’s Southwest President Kevin Roberts. “We are pleased to bring in forward-thinking leaders to provide valuable insight into many of America’s important issues. We are extremely honored to have had Mr. Carlson participate in the 16th annual TrendLines event to enhance the overall experience for our clients.”
Guests of the event received a copy of the 16th edition of the TrendLines publication, “Capitalizing on Opportunities in an Evolving Market,” which distills the trends of 2016 and sheds light on issues affecting the region’s future economy and commercial real estate industry in 2017 and beyond. A summary of those economic trends are detailed below.
Hindered by challenges in the energy sector, payroll employment grew by just 14,200, or 0.5 percent, over the 12 months ending in August 2016. Sectors such as education and health services, trade and transportation, and retail are continuing to see growth through this down cycle, although they are beginning to slow their pace. This is limiting the ability to combat losses in the energy and manufacturing sectors. At the time of publication, the metro area has lost a total of 27,900 jobs from January to August 2016. However, most of Houston’s job growth historically comes in the last few months of the year, and Houston hosts the Super Bowl in early 2017. Transwestern expects payroll job growth of approximately 10,000 jobs in 2016 and approximately 20,000 jobs in 2017.
The combination of the downturn in the energy sector and the high velocity of the most recent development cycle has left the Houston office market in turmoil, and signs are mixed as to when a true recovery will effectively begin. Based upon short-term energy forecasts and hiring outlooks for 2017 and 2018, Transwestern anticipates absorption to range from a downside of negative 1 million square feet to high of more than 700,000 square feet through 2017. Considering that Houston has averaged more than 4.2 million square feet in annual absorption during the past decade, this precipitous decline will create downward pressure on asking rates with vacancy and total availability increasing by an additional 2 to 3 percent. As the market improves and begins to create jobs at a rate of approximately 60,000 per year in 2018, Houston will begin to work through the glut of availability, an endeavor that could take several years to unwind.
In spite of the declining fundamentals in the local economy, the Houston industrial market has maintained strong growth through 2016, driven by activity stemming from the Port of Houston and petrochemical construction. Distribution channels remain strong as the expansion of the Panama Canal has boosted overall volume, a trend that will continue well into the future.
However, the petrochemical expansion activity that has bolstered the southeast is closing its course, and, given softness in the manufacturing sector, Transwestern expects vacancy rates to increase into the low 7 percent range over the next 12 months as demand for space weakens. Through the end of the year, net absorption should remain high with nearly 4.7 million square feet of space delivering at 57 percent preleased. Most landlords will continue to offer concession packages to tenants as rental rates remain flat or decrease slightly, particularly on the new product in the southwest and north markets.
The Houston multifamily sector has softened during the course of 2016 due to significantly inflated construction levels coupled with slow to no job growth. With job creation to permit ratios of 2-to-1 while job creation to unit absorption ratios are 6-to-1, Houston’s frenzied development pace has resulted in a glut of available units that is affecting all core metrics. Looking forward, Transwestern forecasts occupancy rates to continue their decline as face rates slide, a trend primarily focused in Class A but extending to Class B properties as well. Concession packages will remain prevalent as landlords compete for a more modest pool of tenants. Significantly reduced job growth over the next 12 to 24 months will foretell a slow recovery with the potential to be several years in many submarkets.
The Houston retail sector is seeing the most job gains since 2007 with 9,500 jobs added over the 12 months ending in August 2016, a 3.1 percent increase. In the coming months, retail job growth should remain red-hot due to seasonal hiring ramping up through the end of 2016 and the upcoming Super Bowl in early 2017. Houston is becoming a popular destination for retailers looking to break into new markets outside of their home base cities. This can be seen in fast-casual dining as well as experiential retail concepts. The retail sector will continue to perform well through the end of 2016 as it evolves with changing consumer dynamics.
While much of the surrounding market suffers through the energy downturn, the Houston healthcare market drives on, boosted by an aging population combined with strong household growth. However, the benefits of these areas are beginning to diminish. Post-election policy changes to the healthcare laws will create hesitancy in decision making, while the demographic cohorts that have driven new supply have largely been accounted for through the existing pipeline. As such, the construction pipeline will begin to decline modestly as large projects deliver in 2017. Still, large hospital institutions will continue to seek opportunities for new developments in expanding suburbs such as The Woodlands, Katy and Sugar Land as healthcare fundamentals remain healthy through 2016 and heading into 2017.
Transwestern is a privately held real estate firm of collaborative entrepreneurs whodeliver a higher level of personalized service – the Transwestern Experience. Specializing in Agency Leasing, Management, Tenant Advisory, Capital Markets, Research and Sustainability services, our fully integrated global enterprise adds value for investors, owners and occupiers of all commercial property types. We leverage market insights and operational expertise from members of the Transwestern family of companies specializing in development, real estate investment management and research. Based in Houston, Transwestern has 34 U.S. offices and assists clients through more than 180 offices in 37 countries as part of a strategic alliance with BNP Paribas Real Estate. Experience Extraordinary at transwestern.com and @Transwestern. For updates from the Houston office follow @TranswesternHOU.