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
| Aug 25, 2014
Photographer creates time-lapse video of 1 WTC using 30,000 photos
Choosing from 30,000 photos he took from the day construction began in 2006 to the day when construction was finished in 2012, Brooklyn-based photographer Benjamin Rosamund compressed 1,100 photos to create the two-minute video.
| Aug 19, 2014
Goettsch Partners unveils design for mega mixed-use development in Shenzhen [slideshow]
The overall design concept is of a complex of textured buildings that would differentiate from the surrounding blue-glass buildings of Shenzhen.
| Aug 18, 2014
From icon to breadbasket: Gehry building to be turned into Whole Foods
The Howard Hughes Corporation, in association with architecture firm Cho Benn Holback + Associates, plans to turn the building—at least the majority of it—into a Whole Foods.
| Aug 18, 2014
SPARK’s newly unveiled mixed-use development references China's flowing hillscape
Architecture firm SPARK recently finished a design for a new development in Shenzhen. The 770,700 square-foot mixed-use structure's design mimics the hilly landscape of the site's locale.
| Aug 14, 2014
How workplace design can empower employees, businesses
Focusing on recent work at Follett and Zurich, CannonDesign’ Meg Osman reveals the power of research, strategy, change management, and measurement to transform businesses for the better.
| Aug 12, 2014
Shading prototype could allow new levels of environmental control for skyscraper occupants
Developed by architects at NBBJ, Sunbreak uses a unique three-hinged shade that morphs from an opaque shutter to an abstract set of vertical blinds to an awning, depending on what is needed.
| Aug 11, 2014
The Endless City: Skyscraper concept connects all floors with dual ramps
Rather than superimposing one floor on top of another, London-based SURE Architecture proposes two endless ramps, rising gradually with a low gradient from the ground floor to the sky.
| Aug 8, 2014
First look: China's latest office development will take the shape of binary code
The Window of Guangzhou project will consist of three towers forming the number sequence "001."
| Aug 8, 2014
Government Sector Giants: Public-sector construction slow, but stirring [2014 Giants 300 Report]
Improving energy performance of existing properties through targeted upgrades and large-scale reconstruction continues to be a federal priority, according to BD+C's 2014 Giants 300 Report.
| Aug 7, 2014
Office Sector Giants: ‘Flex’ reigns supreme in hot office construction market [2014 BD+C Giants 300 Report]
The adage “doing more with less” has become a byword for many businesses since the Great Recession, and clients are trying to maximize every precious inch, according to BD+C's 2014 Giants 300 Report.