Commercial Real Estate: Houston Falls to 30

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“Houston is on fire right now. We don’t see it letting up.” That’s what the Urban Land Institute (ULI) reported a year ago in its Emerging Trends in Real Estate 2014 report. The city was No. 2 on its list, as employers around the region added 93,300 jobs over the last year, according to the Texas Workforce Commission.

By October 2014, Houston was named the top real estate market to watch for 2015 thanks to energy.

Now, well, things are a mess.

With oil well off $110 highs at $46.86 a barrel, Houston has taken quite a hit.

According to the ULI 2015 report, “Houston provided the most dramatic move, falling from number one to number 30. Concern over what the fall in the price of oil combined with the current level of new development gave survey respondents pause for 2016.”

“Last year’s interviews and surveys were conducted with oil prices climbing steadily toward $100 a barrel, so it was no surprise when Houston—which had been in the top ten in previous years—moved to the number-one spot. What a difference a year can make! As oil prices have plummeted into the $40-perbarrel range, survey respondents are not confident in Houston real estate for the coming year. Houston drops to number 30 in this year’s survey, a drop that exceeds that of Washington, D.C., which fell out of the top 20 in the 2014 survey.”

"Healthy debate is good, and there are some differences of opinion on the outlook for Houston. One interviewee summed it up thusly: “The Houston situation would make a great science experiment. We will get to see if all of the economic diversification that has taken place over the past 20 to 30 years can help offset an oil price shock.”

Despite the decline, though, there is potential opportunity.

As I’ve long noted:

Once the smoke clears and we begin to see a recovery in oil, commercial real estate investors could be presented with considerable opportunities. “There will be some pent-up demand when we come out of this cycle,” notes The Houston Business Journal. “Once energy stabilizes, you’ll see leasing activity tick up quickly.”

Houston is well worth paying close attention to, especially when energy prices begin to firm. It’s only a matter of time.

Those interviewed for the ULI 2015 report agree, perceiving weakness in the Houston market as a potential buying opportunity in what “they feel is still a vibrant market.”