Houston Absorbs the Big

Blow from Oil in 2015:

Who Shares the Pain in
2016?
Robert W. Gilmer, Ph.D.
C.T. Bauer College of Business
May 17, 2016

Overview of the Houston

Economy
We just finished what may be the worst quarter ever for
American oil, and the drilling rout continues. In important
ways the drilling downturn is worse than 1982-87.
As a result, any recovery in oil markets and in the Houston
economy will begin from a lower point and start later than
previously anticipated.
If we want to avoid significant job losses in Houston, it is
growing late. Oil prices must stabilize soon. This year will
probably see small job losses, where we previously forecast
small gains.
But in 2017, eastside petrochemical construction winds down
rapidly. If upstream E&P is not back and hiring again, the
downstream construction layoffs will bring a growing chance
of moderate 2017 recession. Job losses of one or two percent
become more probable.

Oil Makes the Difference

in Houston
$120
$110$104
$100
$90
$80
$70
$59
$60
$50
$40
$30
$20

Spot Price of WTI in $/barrel

$51

$54

*Through May 4, 2016

$60
$43

$46
$37
$32

$38

How Did 2015 Turn Out?

Very Slow, But No
Recession
So Far
2012
2013
2014
2015
Spring 2015
Forecast

December to
December Changes
Jobs
Change
118,600
4.3%
89,800
3.2%
117,800
4.0%
15,200
0.8%
12,900

0.5%

Texas Workforce Commission, seasonal adjustment by IRF

Job Losses Are Driven By Energy

(Net Change in Jobs)

Sector

Since Oil Bust

Began
Dec 14 Mar
16
New
Perce
Jobs
nt
Total Payroll
10,300 0.4%
Mining
-19,200
17.3%
Construction
4,200
2.0%
Manufacturin -25,500 -9.8%
g
Machinery -13,500
20.5%
Fab Metal -13,000
Job gains of 38,550? Concentrated
21.6%in

So far in 2016
Dec 15- Mar 16
New
Jobs
-4,400
-1,600

Percent

-8,300
-1,700

-3.7%
-0.7%

-1,700

-2.8%

-2,900

-5.3%

-0.1%
-1.7%

Healthcare, Leisure and

Hospitality, Retail Trade, and Local Government

6
4

Houston
Employment:
Percent Change By
Year
4.0
0.5
-0.1

2
0

-2
-4
-6
Note: December to December changes, except 2016
which is year-to-date, annualized and seasonally
adjusted

Houstons Job Growth

Machine Broke Down in
Early
2015
8
(3-month percent change at annual rates)

Houston

6
4
2
0
-2
-4

U.S.

-6
-8
-10
Texas Workforce Commission and Bureau of Labor
Statistics

Purchasing Managers
Index
U.S. and Houston
Compared
(s.a.)
Houston

70.00
65.00
60.00
55.00
50.00
45.00
40.00

Index > 50 means expansion

Index < 50 contraction

U.S
.

35.00
30.00

National Association of Purchasing Management - Houston

Houston Unemployment Now Rising

(percent unemployed, s.a.)

11.0
10.0

Unemployment Rate
At 5.0% in March

9.0
8.0
7.0
6.0
5.0
4.0
3.0

Bureau of Labor Statistics

24,400 New Unemployed

Since December 2014
280000
260000
240000
220000
200000
180000
160000
140000
120000
100000

How Are You Feeling?

Many sectors of Houston have not felt much pain from
this downturn yet. What oil bust?
How can this be?
Maybe they sell into strong national markets: United Airlines,
Sysco, AIG, HP,
Maybe they live in East Houston
Maybe they are living off of past momentum. Houston added
680,000 jobs from 2004-2014
Population stays strong for usually stays strong for several
quarters after job growth slows
Most damage has been confined to oil producers, oil services,
and manufacturing so far

BUT another slow year in Houston gives time for the

slowdown to spread to many sectors that have felt
immune so far healthcare, retail, restaurants, real
estate, leisure, and government

Basic Jobs Still In Reverse,

Non-Basic Jobs Running
Out of Momentum
(3-mo percent change at annual rate)
20
15
10
5
0
-5
-10
-15
-20
-25
-30

Basic
Non-Basic

Non-Basic Jobs Still

Growing -But the Rate Is Slowing
Index: Jan 2014 = 100

108
106
104
102
100
98
96
94

Percent Growth Non-Basic Jobs at Annual Rates

4.5

Non-Basic
N
+6.7%
o
n
B
a
si
c
J
o
b
s

Base Jobs
-6.2%

4
3.5
3
2.5
2

92
90

1.5

About Four Non-Basic Jobs

in Houston Supported By
Each Base Job
5.0
4.8
4.6
4.4
4.2
4.0
3.8

Too many Non-Basic Jobs

as Base Shrinks Rapidly

Oil Markets and Oil

Price

Where Did the Oil Bust

Come From?
How Did We Get Here?

The Commodity Super Cycle Comes to an End

Oil, metals, food, agricultural raw materials see price soar after
2004 and stay high for a decade
Primarily driven by a surge in growth by emerging markets,
especially China
$100 oil was the market signal to expand capacity, and as the
Super Cycle ended we returned to long-run price near $65 last
spring and early summer

Overshoot $60, and wind up below $30 per barrel?

In July, the Iran Nuclear Agreement is signed and promises a
return of quick 1.2 million bbl/d to export markets
The August devaluation of the Chinese Yuan distills concerns about
China into fear about how bad things might be

The last quarter was brutal for U.S. oil, with drilling falling
to record lows week after week.

Is the Commodity Super-Cycle Over?

(price index: Jan 2001 = 100)
600
500
400
300
200
100
0

International Monetary Fund

Food
Ag Raw Materials
Metals
Crude Oil

Growth in the Demand for

Oil Comes
From Emerging Markets
(million b/d)

20

17.4

15
10

Global
OECD
Non-OECD

8.0

5
0

1996-2003

-5
International Energy Agency

2003-2015

Global Growth Sluggish

In 2015-16
(% GDP Growth)

2013

2014

2015

2016

2017

World

3.3

3.4

3.1

3.2

3.5

U.S.

1.5

2.4

2.4

2.4

2.5

Euro Area

-0.3

0.9

1.6

1.5

1.6

Japan

1.6

0.0

0.5

0.5

-0.1

---

---

China

7.7

7.3

6.9

6.5

6.2

India

6.9

7.3

7.3

7.5

7.5

Brazil

2.7

0.1

-3.8

-3.8

0.0

Source: IMF World Economic Outlook: April,

2016

On Supply Side? U.S. Shale Reversed

40 Years of Declining Oil Production
(million barrels/day)
11
10
9
8
7
6
5
4

DOE/EIA, Seasonally adjusted by IRF

U.S. Oil Production Finally

Slowing
Million bbl/day, s.a. data
10
9
8
7
6
5
4

DOE/EIA, seasonally adjusted

by IRF

Peak: May 2015

Down 300,000 bbl./d

The Saudi Revenue

Dilemma
Raise price/lose market
share OR cut price/keep
market share
Implement lessons learned
the hard way from 1980s
Force U.S. shale into the
role of the swing producer
Defend their market share,
not the price

Mix in an aggressive and

powerful new crown prince,
Sunni-Shiite politics, and a
healthy dose of Saudi
paranoia about their future.

The Economist, December 2014

The Greatest Oil Boom

Is Over

Now
Time
for
Drilling capital
expenditures
Recovery?
Baker Hughes rig count
($2015 billion at
annual rates)

350000000000

(working rigs)
2300

300000000000
250000000000
200000000000
150000000000
100000000000
50000000000
0

1800
1300
800
300

apital expenditures for E&P from Oil and Gas Journal, calculations of IR

Thinking About Recovery

In the
Oil Patch

$/bbl.

80
70

Recovery Needs Oil Price Near $65/bbl.

11
Long-Run Marginal Cost of Global Oil Production
10
9

60
5

50

4
3

40
30

20
10

0
Production (million
bbl./d)

Price of WTI Oil As Implied

by Valuation of the Stock
of 40 Producers
$/bbl.
$63
$62
$61
$60
$59
$58
$57
$56
$55
$54
$53

62

62

62

60

Jan '15

Apr '15

Jul '15

56

56

Oct '15

Jan '16

Goldman Sachs Research, at first week of each quarter

Apr '16

Where the Prior Forecast

Went Wrong
We Still Are Looking for the Trough in U.S.
Drilling Activity
Weekly Count of Working Rigs

1800
1300
800

2014-2015

20082009

765 Rig Count trough

in previous forecast

300

Weeks after peak in drilling activity

Three Scenarios for

Recovery in Oil
When will oil prices hit bottom?
When will the rig count turn up?
When do energy jobs begin to come
back?
How high will the rig count go in this
recovery?
How long before the rig count
reaches these highs?

Recovery in Rig Count

After Oil Market Improves
(working rigs by quarter after oil prices
begin to rise, s.a.)
2,500
2,000

2008-09

1,500

2001-03
1982-87

1,000
500

1997-98
0

Baker Hughes, calculations of IRF

Quarters after recovery

Drilling Recovery After

the Price of
Oil Hits a Low
Past Recoveries

Forecast

1982- 1997- 2001- 2008- Hig

87
98
03
09
h Medium Low

Quarters Until:
Rig Count
Bottoms Out
0
2
2
1
2
2
3
Energy Jobs
Make a Low
2
4
4
3
5
6
7
Prior High Rig
Count
never
8
8
11
10
11
12
Note: For the high, medium and low forecasts, it is assumed
that the rig count returns to 1650, 1500, and 1300,
respectively.

Other Key Assumptions

Oil Price Bottoms Out?
High Scenario: 2016 Q1
Medium Scenario: 2016 Q2
Low Scenario 2016Q4

Rig Count Max After

Recovery?
High Scenario: 1650
Medium Scenario: 1500
Low Scenario: 1300

Return of Energy Jobs

Follow the rig count
Allow for complexity of fracking,
productivity trends
Never returns to previous highs
in any scenario

Rig Count Scenarios and the Return of

Oil Employment in Houston
Rig Count

Oil-Related Jobs in Houston (000)

2500.0

315.0

2000.0

295.0
275.0

1500.0

255.0
1000.0

235.0

500.0

215.0

0.0

195.0

High
Low

Medium

High
Low

Medium

What the Futures Market

Thinks About WTI Oil Price
$70
$65

WTI, Price $/Barrel

$60
$55
$50
$45

$46

$50 $51
$50
$49
$48

$40
$35
$30
$25

42522 42552 42659 42705 42887 43070 43252 43435 43617

Futures
As of May 6, 2016

$60

WTI Price: Historical and Futures Price

In April 2016
($/Barrel)

95% Confidence Interval

95 percent confidence

Energy Information Administration, Short-term Energy

Outlook, April 2016

U.S. Economy Continues to

Work for Houston

U.S. Economy Continues

to Grow Strongly and
Create Jobs
Assume in all scenarios that the U.S. economy has
put the Great Recession behind it
Consumer has deleveraged; state and local
governments are collecting revenues at a healthy
rate and spending; the housing market has
returned to close to normal
U.S. job growth is at 1.7 percent or about 200,000
jobs per month throughout the forecast horizon
Negative outlook of early this year behind us:
China and other emerging markets look better,
dollar is weaker, stock market correction behind
us, leading indicators point to moderate growth

Smoothed U.S. Recession Probabilities

(percent chance of recession)
Percent

100
90
80
70
60
50
40
30
20
10
0

US Financial Crisis

2001
Recession

Subprime Blows Up

Currently less than 1%

Source: Chauvet and Piger smoothed recession probabilities,

FRED, St. Louis Fed

Futures Market Sees Fed

Funds Rate Rising Very Slowly
Percent Yield Fed Funds
1.2

Virtually no chance before of rate hike before

December 2016 says futures market

Not even one increase is fully priced in

before November 2017

Headed (someday) for fed funds in a 3.0-3.5

percent range

With current 10-year treasury yield near

2.6%, market opinion is only 2.3% by yearend 2017 and 2.6% by year-end 2018

1
0.8
0.6
0.4
0.2
0

Downstream Boom
Offsets Upstream Bust

Low Oil Prices Keep Gulf Coast

Refining Margins Strong
30

($/bbl)

25
20
15
10
5
0

Pace refining margins, Oil and Gas

margin
Six-mo avg

Natural Gas Shares Oils

Hockey Stick Surge in Production
Marketed production, Bcf/mo, seasonal adj
2.45
2.25
2.05
1.85
1.65
1.45
1.25

DOE/EIA

Natural gas prices

collapsed
in late 2011
14
12
10
8
6
4
2
0

DOE/EIA

($/mcf)

$164 Billion U.S. Construction

Boom is Based on Cheap Energy

This $153 total includes many industries and

all of the U.S.
New ethylene crackers, more ethylenerelated expansion in PE, PVC and other
derivative plants
LNG export terminals to sell surplus natural
gas into global markets
Refiners have joined in with additional
expansions
ote: The $153
billion figure is based on all U.S. shale-related expansion, estimate
the American Chemistry Council in April, 2016

Natural Gas Energy

Content Equivalent to $15
-$30 per Barrel for Oil
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00

DOE/EIA and calculations of the author

oil $/b
nat gas $/b

Ethylene Margins
(cents per pound)
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
-10.00

Large Projects Headline

Over $50 Billion
in East Houston
Construction
Compan
y
Location

Project

Exxon

Baytown

Ethylene

2017

$5,000

Chevron

Freeport

Ethylene

2017

$4,000

Dow

Baytown

Ethylene

2017

$3,500

BASF

Freeport

Ethylene

2017

$3,000

Freeport
LNG

Freeport

LNG Export

2019

$3,000

Freeport
LNG

Freeport

LNG Export

2020

$3,000

Bayer

Baytown

PUR Facility

2021

$2,000

Freeport

Gas to
Polypropylene

2017

$1,500

Freeport

Methane to
Propylene

2018

$1,400

CPV
Freeport
LNG

Completio
n
Value ($ mil)

Projects Begin to Wind

Down
Rapidly After 2017
(Value of Projects Completed, $ million)
$25,000

$22,706

$20,000
$15,000
$10,000 $8,319
$4,980

$5,000
$0

2016

2017

2018

$4,000

2019

$3,000
2020

$2,000
2021

Projects Are Still Being

Proposed and Announced
But Tough to Replace $50
Billion
Company

Ineos
Dow
MEGlobal
BASF
Fund
Connell
Air
Products
BASF
Chevron
Phillips

Location

Project

Brazoria Proposed Ethylene

Monoethylene
Freeport
Glycol
Proposed
Freeport
Propylene
Proposed
Texas City
Methanol

Completion

Value ($ mil)

2020+

$ 2-4,000 ?

2019

$1,000

$1,000+

Status?

$4,500

Baytown

Hydrogen

2018

$400

Pasadena

Plasticizers

2017

Baytown

PAO

2017

$?

Various sources

A Counterweight to Upstream
Damage Lost in 2017
Jobs added up quickly given the number and
scale of proposed construction projects in 20152017
These are temporary jobs, disappearing as
projects end and capital expenditures wind down
Normally, downstream capital expenditures are
small compared to the upstream, move in a
narrow range, and create relatively few jobs. We
have been lucky, so far.
What if the construction boom ends with oil
producers, oil services, machinery and fabricated
metals still struggling?

We Are Running Out of

Time
Petrochemical construction begins to wind down
in mid-2017. The petrochemical construction
advantage enjoyed so far turns negative in the
next 12 months.
Count quarters and we needed oil prices to
stabilize in 2016 Q1 for rig count and upstream
energy employment to turn up in time to offset
construction losses.
Even our high scenario means another slow year
in 2017, and either the medium or low scenario
could bring significant job losses next year

Job Growth in
Houston
2013-2019
(000 Jobs, Q4/Q4)

Scenario
Year

High

Medium

Low

30/50/2
0

2013
2014
2015
2016
2017
2018
2019

90.3
112.1
23.4
-7.4
10.3
97.2
94

90.3
112.1
23.4
-11.1
-34.2
65.8
107.3

90.3
112.1
23.4
-13.5
-57.6
20.1
69.4

90.3
112.1
23.4
-10.8
-30
62.9
97.1

Calculations of IRF, based on drilling scenarios above

This Forecast vs.

November: Recovery
Delayed
(Thousands of Jobs)
2014
2015
2016
2017
2018
2019

Current
30/50/20
112.1
23.4
-10.8
-30.0
62.9
97.1

Last November
40/40/20
103.6
14.0
20.1
74.4
86.8
73.6

Calculations of Institute for Regional Forecasting

Residential and
Commercial Real Estate:
The View from the Back of
the Bus
Residential and commercial
real estate is the
ultimate NONBASIC industry. A follower that
responds to growth led by others
When oil prices fell, the office market found itself
in trouble almost immediately. And apartments
just kept building, building, building and now
have made their own problems
Single-family statistics still look good for the
metro area. but beneath the surface, strains are
showing up in a number of markets
Industrial and retail are in good shape, but
caution is warranted until oil markets finally turn

Existing Home Sales Flat in

Houston Since Flat
2012
since 2012?
(sales, s.a.)
9500
8500
7500
6500
5500
4500
3500

Source: Texas A&M Real

Estate Center

Due to lack of
existing and new
home supply

Median home
prices rose rapidly
after 2011, at 9.4
percent annually
from 2012-2014
2015 saw
continued high
level of sales,
limited relief on
inventories, prices
level off since the
spring

Strong Growth and Lot

Shortages Distorted
Single-Family Housing
Months SupplyMarket
Median Price
9
8
7
6
5
4
3
2

220000
210000
200000
190000
180000
170000
160000
150000
140000

Source: Texas A&M Real Estate Center

Ship Channel Cities

Baytown, Channelview, Pasadena
Sales and Home Prices Rising

Inventory at 2.5 months

270

150000

250

140000

3.5

130000

230

120000

210

110000

190

100000

170

90000

150

80000

Sales

3
2.5
2
1.5

Inventory

Source: Texas A&M Real Estate Center, calculations of IRF

Close-In
Rice Military, Heights, Galleria
Sales and Prices Sag in 2015 Inventory above 6 months,
as prices soften
290
430000
270

380000

250

330000

230

280000

210

230000

190

180000

170

130000

150

80000

Sales

6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0

Price

Source: Texas A&M Real Estate Center, calculations of IRF

Inventory

South of I-10
Memorial and Energy Corridor
Prices hold up despite
sagging sales

Inventory now over 6 months,

growing pressure on price

180

500,001

7.5

160

400,001

6.5

140

300,001

120

200,001

100

100,001

2.5

1.5

80

Sales

5.5
4.5
3.5

Inventory

Source: Texas A&M Real Estate Center, calculations of IRF

Woodlands in Retreat
Sales and price
crumbling quickly
270
250
230
210
190
170
150

390,000
370,000
350,000
330,000
310,000
290,000
270,000
250,000

Inventories on the rise

5.5
5
4.5
4
3.5
3
2.5

Inventory
Source: Texas A&M Real Estate Center,
calculations of IRF

Other Markets
Sales Price

Invento
ry
Low

South
Flat
Up+
Houston
North of I-10 Flat
Flat
Up+
Katy
Up
Flat
Low
Distant
Down Up
Low
Suburbs*
*Distant suburbs are Kingwood, Pearland, and
Sugarland

Rising Land Prices Drove

Cost of
New
Homes
Land Drives Cost of Houstons New Home Construction Since 2012
(Index: 1999Q4 = 1.00)

2.5
2.0

Spike in Land Prices Adds $40,000 To Typical New Home After 2013

$250,000
$200,000

1.5
$150,000
1.0
$100,000

0.5

$50,000

0.0

Home Price
Land Price
Structure Cost

$0

Structure Land
Source: Lincoln Institute of Land Policy

Losing Our Affordability

Edge?
Metro Area

Populati
on
(million)

Share of Land
Cost in Home
Price (%)

Affordability
% Potential
Buyers

New York

20.1

47.4

22.0

Los Angeles

13.3

70.5

14.9

Chicago

9.6

15.8

67.3

Dallas Fort
Worth

7.0

---

---

Dallas

4.6

28.0

54.0

Fort Worth

2.4

21.0

64.9

Houston

6.5

25.0

60.9

Philadelphia

6.1

22.2

68.9

Washington,
D.C.

6.0

47.5

68.4

Miami

5.9

53.0

53.4

Atlanta

5.6

29.7

71.8

Boston

4.7

60.7

50.5

San Francisco

4.6

80.5

10.4

Phoenix

4.5

30.0

68.6

Red means
the market
is
more
affordable
than
Houston

Top-end buyers lost to oil

bust,
bottom of the market
High-end market
for executives back in
wants
and professionals is gone for

the next couple of years

There are 2.3 million
households in Houston. Every
time affordability ticks up one
percent, it locks 23,000
families out of the market.
Affordability down 4-5 percent
means over 100,000 families
were pushed out since 2013
They have household incomes
of $55-$65,000 and can qualify
for $200,000 product. Can we
deliver this price point?

Wells Fargo Housing Opportunity Index

Affordability Index: Percentage of Houston households that can afford median priced home

80
75
70
65
60
55
50
45
40

Single-Family Permits Stagger

(monthly permits at annual rates, s.a.)
9000000
8000000
7000000
6000000
5000000
4000000
3000000
2000000
1000000
0

Texas A&M Real Estate Center

Multifamily Finally
Overdoes It

Red? Where Apartment Units

Are Built or Under
Construction After 2013

CoStar, IRF

Apartments In A Local Market

Since Early 2014, Medium
Triples, Darkest Quadruple or
More

Class A Apartment Market

Suffering from SelfInflicted Wounds
Class A Rents and Occupancy
Under Growing Pressure
Stable

In Lease
Up

All Class
A

No. of
Units

118,92
2

23,498

142,420

Monthly
Rent

$1,434

$1,505

$1,464

Occupan 91.3%
26.2%
Apartment
Data
Services
cy

80.5%

Occupancy still very high at 90+% for Class

B,C, and D

Class A is struggling with rent under pressure

from widespread concessions and falling
occupancy rates

There are 23,500 units in lease-up with only

26.2% occupancy, another 25,000 units still
in the construction pipeline

Some parts of Houston will get a couple of

months of relief from concessions as flood
victims seek new housing

New Product Puts Class A

Under Pressure, Others
Okay So Far
Class A Rents and Occupancy
Under Pressure

1,500

85

1,480

84
83

1,460

82

1,440

81

1,420

80

1,400

79

Mo. Rent $
Occupancy
Apartment Data Services

Occupancy Still high in Class B,C, and D

95
94
93
92
91
90
89
88
87

Class B
Class D

Class C

Multifamily Permits
Finally Turn Down In
Houston
6-month average
3,000
2,500
2,000
1,500
1,000
500
0

These Multifamily Vacancy Rates Have

Been Seen Before
(percent)

10%
9%
8%
7%
6%

Forecast Vacancy Based

on 30/50/20 employment
Population

5%
4%
1995
CoStar, IRF

2000

2005

2010

2015

2020

Office Market Deliveries

Out of Synch With Local
Economy

Office Market Swoons

The worst damage was done with 14.5 million
square feet entering construction just before the
bust begins, from 2013Q2 to 2014Q1
Much of the space was for corporate
headquarters, campuses, and otherwise
preleased but it opened the door to at least
10 million square feet of sublet space to return
Oil bust arrives, and it leads to an all-to-familiar
cycle with office deliveries completely out of
synch with the local economy, with vacancies on
the rise and rents under pressure

Office Vacancy Forecast

18%
17%
16%

Low

15%

30/50/20

14%
13%
12%

Averag
e=
13.2 %

11%
10%
CoStar, IRF

High

Vacancies Rise Through

2017 Mainly Due to
Continued
Deliveries
5%
4%
3%
2%
1%
0%

2002
2006
2010
2014
2018
-1%
2000
2004
2008
2012
2016
-2%
-3%
CoStar, IRF

Change in Vacancy
% Change S.F.

Local Office Markets With

Vacancy Rate Already
Above 16 Percent

CoStar, IRF

Industrial Thriving in
East,
Pauses in the West

Industrial Buildings Delivered

After 2010: East vs. West

CoStar, IRF

Deliveries: West Now Holds

Steady While East Ramps Up
RBA
Delivered
East

RBA
Delivered
West

Perce
nt
West

559,217
380,214
1,738,112
1,566,298
1,940,699
3,349,933

2,003,106
1,864,422
2,848,026
6,320,350
6,754,671
7,736,091

78%
83%
62%
80%
78%
70%

7,297,404

7,169,949

50%

Grand Total
17,041,877
CoStar, IRF Geography

35,526,615

68%

Year
2010
2011
2012
2013
2014
2015
2016
(Includes
Under
Construction)

Vacancy Rates Trend Up

in West and Down in the
11%
East
10%
9%
8%
7%

East
West

6%
5%
4%
3%
2%
1995

2000

CoStar, 2016 YTD

2005

2010

2015

2020

Industrial Rents Pause in West

and Rise in the East
(NNN Overall)

$7.0
$6.5
$6.0
$5.5

East
West

$5.0
$4.5
$4.0
$3.5
$3.0
1995

2000

oStar, 2016 YTD

2005

2010

2015

2020

Retail: Ready for the

Recovery
Retail missed the boom of recent years after delivering 16
million square feet in 2006-07, just in time for the Great
Recession
It has been relegated in recent years to following the
grocery store anchored shopping centers, chasing new
home construction around the Grand Parkway
Vacancy rates turned healthy and rents began to rise but
just in time for the current oil bust
Retail sales continue to grow slowly, but is the market for
new product is diversifying from grocery stores.
The current construction pipeline is no threat to the
market, growing more slowly than population. But definite
signs of weakness are now showing up in some housing
markets, and retail sales growth cut by half through 2015.

Consumer Taxable Sales

Still Grow Slowly, Business
Sales in Full Retreat
$ Billion Taxable Sales
11000000000
10000000000
9000000000
8000000000
7000000000
6000000000
5000000000

Texas Comptroller, data for City of Houston

Consumer
Business

But Rents and Vacancy Turned

Just in Time for the Bust
10%
9%

Rent $/ft.sq.

$15

8%

$14

7%

$13

6%

CoStar, 2016 YTD

$16

Vacancy Rate

$12

5%

$11

4%

$10

20%

Retail Growth Will Continue to Lag

Population Based on Current
Construction Pipeline

15%
10%
5%
0%
-5%

RE, Texas A&M Real Estate Center, IRF Forecast

Population
Retail

Thank You for

Attending
Please Join Us for Our Next Symposium on
Thursday, November 10, 2016
Registration Information in September

South Houston

South Belt, Clear Lake, League City

Sales flat, prices rising

450

220000

400

200000
180000

350

160000

300

140000

250

120000

200

100000

Sales

Price

Inventory loosens

4.5

4
3.5
3
2.5

Inventory

Source: Texas A&M Real Estate Center, calculations of IRF

South of I-10

Memorial and Energy Corridor

Prices hold up despite
sagging sales

Inventory rising steadily,

growing pressure on price

180

500,001

160

400,001

140

300,001

120

200,001

100

100,001

2.5

1.5

80

Sales

5.5
4.5
3.5

Inventory

Source: Texas A&M Real Estate Center, calculations of IRF

Katy

Katy North and South

Sales and price holding on
390

310,000
290,000
270,000
250,000
230,000
210,000
190,000
170,000
150,000

370
350
330
310
290
270
250

Sales

Price

Inventories still low

4
3.5
3
2.5
2
1.5

Inventory

Source: Texas A&M Real Estate Center, calculations of IRF

Other Distant Suburbs

Pearland, Sugarland, Kingwood
Sales sag, price strong
600
550
500
450
400
350
300

340,000
320,000
300,000
280,000
260,000
240,000
220,000
200,000

Sales

Inventories remain very low

2
1.5
1
0.5
0

Price

Source: Texas A&M Real Estate Center,

calculations of IRF

Inventory