A few days ago, The Wall Street Journal reported that one-sixth of all office space under construction nationwide is located in the Houston metropolitan area.
The Journal quoted the property data firm CoStar Group, which stated that by the end of 2014, 80 buildings with about 18 million sf of office space were started in Greater Houston.
This wouldn’t be earthshaking news—Houston, after all, continues to be one of country’s more vibrant markets, ranking 39th out of 300 of the largest metropolitan economies worldwide, according to the Brookings Institution’s Global MetroMonitor—were it not for the fact that all this office construction is occurring at a time when the price of oil—a commodity that helps lubricate Houston’s economic engine—has plummeted by more than 50% since last summer.
Several of the biggest energy companies have announced more than 30,000 layoffs worldwide, and a sizable number of those workers could be Houstonians. Fewer workers require fewer offices, and employers are already rushing to sublease the space they occupy, the Journal reports.
Sources: WSJ, CoStar Group
In a follow-up story, the Journal reports that 13.2 million sf of office space are on schedule to be completed in 2015, the highest total since 1984.
CoStar now estimates that Houston’s vacancy rate could rise to 15.3% by 2016, from 10.8% at the end of 2014.
The newspaper singles out one development firm, Hines, that’s building a 48-story tower on spec, without tenants lined up, as an example of how certain companies suddenly find themselves exposed to a potential economic downturn. On the flip side, excess office space and higher vacancy rates could lead to lower rents, and opportunities to find existing space rather than building new.
HOUSTON NOT AS OIL DEPENDENT
But is Houston really headed for a fall? Not if you listen to some of the comments posted about the Journal article. One reader insisted that Houston is nowhere near as oil dependent as it was in the 1980s, when its housing market all but collapsed and nine of Texas’s 10 largest banks failed.
“Houston is twice as large as it was in 1980, and its dynamic economy is now twice as diversified,” one reader commented. “Also, the oil industry has fortified itself since 1980. Houston now boasts 11 major economic sectors in its massive economy.”
(Similar arguments about Louisiana’s supposedly more-diverse economy were made recently in an article published by The Advocate in Baton Rouge, La., which reported that only 13% of that state’s proceeds is now tied to mineral revenue, compared to 42% in the 1980s.)
A recent survey of Houston-area purchasing managers at 45 companies found that those not so tightly bound to oil prices—such as utilities and non-energy manufacturing—have seen a boost in new orders, production levels, and supplier purchases.
“We’ll have to see where things go in the next few months,” Ross Harvison, Chairman of the Institute for Supply Management-Houston Business Survey Committee, told the Houston Chronicle.
Even the Journal article acknowledges that any “bust” in Houston’s economy might turn out to be short term. The newspaper quotes Mike Mair, Executive VP in charge of Skanska’s construction in Houston, who says his company isn’t panicking about what he concedes could be as “soft” 2015. Skanska is currently building two 12-story towers, one of which doesn’t have tenants yet, and Mair says those projects will proceed. “I’m not afraid of ’16 and ’17,” he is quoted as saying.
Mair’s optimism is promulgated, in part, on long-range projections about Houston’s population, now at around 6.5 million. The Texas State Data Centers expects that people count to expand by an average 2.2 million residents per decade over the next 40 years.
Even with falling oil prices, Houston is expected to add 62,900 jobs in 2015, according to the Greater Houston Partnership. Most cities would welcome such a bounty, but the bar is set higher for Houston, which added 120,000 jobs last year.
Related Stories
Office Buildings | Mar 27, 2024
A new Singapore office campus inaugurates the Jurong Innovation District, a business park located in a tropical rainforest
Surbana Jurong, an urban, infrastructure and managed services consulting firm, recently opened its new headquarters in Singapore. Surbana Jurong Campus inaugurates the Jurong Innovation District, a business park set in a tropical rainforest.
Cultural Facilities | Mar 27, 2024
Kansas City’s new Sobela Ocean Aquarium home to nearly 8,000 animals in 34 habitats
Kansas City’s new Sobela Ocean Aquarium is a world-class facility home to nearly 8,000 animals in 34 habitats ranging from small tanks to a giant 400,000-gallon shark tank.
Market Data | Mar 26, 2024
Architecture firm billings see modest easing in February
Architecture firm billings continued to decline in February, with an AIA/Deltek Architecture Billings Index (ABI) score of 49.5 for the month. However, February’s score marks the most modest easing in billings since July 2023 and suggests that the recent slowdown may be receding.
Cultural Facilities | Mar 26, 2024
Renovation restores century-old Brooklyn Paramount Theater to its original use
The renovation of the iconic Brooklyn Paramount Theater restored the building to its original purpose as a movie theater and music performance venue. Long Island University had acquired the venue in the 1960s and repurposed it as the school’s basketball court.
Adaptive Reuse | Mar 26, 2024
Adaptive Reuse Scorecard released to help developers assess project viability
Lamar Johnson Collaborative announced the debut of the firm’s Adaptive Reuse Scorecard, a proprietary methodology to quickly analyze the viability of converting buildings to other uses.
Security and Life Safety | Mar 26, 2024
Safeguarding our schools: Strategies to protect students and keep campuses safe
HMC Architects' PreK-12 Principal in Charge, Sherry Sajadpour, shares insights from school security experts and advisors on PreK-12 design strategies.
Green | Mar 25, 2024
Zero-carbon multifamily development designed for transactive energy
Living EmPower House, which is set to be the first zero-carbon, replicable, and equitable multifamily development designed for transactive energy, recently was awarded a $9 million Next EPIC Grant Construction Loan from the State of California.
Museums | Mar 25, 2024
Chrysler Museum of Art’s newly expanded Perry Glass Studio will display the art of glassmaking
In Norfolk, Va., the Chrysler Museum of Art’s Perry Glass Studio, an educational facility for glassmaking, will open a new addition in May. That will be followed by a renovation of the existing building scheduled for completion in December.
Sustainability | Mar 21, 2024
World’s first TRUE-certified building project completed in California
GENESIS Marina, an expansive laboratory and office campus in Brisbane, Calif., is the world’s first Total Resource Use and Efficiency (TRUE)-certified construction endeavor. The certification recognizes projects that achieve outstanding levels of resource efficiency through waste reduction, reuse, and recycling practices.