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
| Jul 1, 2014
China's wild circular skyscraper opens in Guangzhou [slideshow]
The 33-story Guanghzou Circle takes the shape of a giant ribbon spool, with the floor space housed in a series of boxes suspended between two massive "wheels."
| Jul 1, 2014
7 ways to cut waste in BIM implementation
Process mapping, split models, and streamlined coordination meetings are among the timesaving techniques AEC firms are employing to improve BIM/VDC workflows.
| Jun 30, 2014
Research finds continued growth of design-build throughout United States
New research findings indicate that for the first time more than half of projects above $10 million are being completed through design-build project delivery.
| Jun 30, 2014
Work starts on Jean Nouvel-designed European Patent Office in the Netherlands [slideshow]
With around 80,000 sm and a budget of €205 million self-financed by the EPO, the complex will be one of the biggest office construction sites ever in the Netherlands.
| Jun 25, 2014
The best tall buildings of 2014
Four high-rise buildings from multiple continents have been selected as the best of their region. The best worldwide tall building will be announced November 6.
| Jun 25, 2014
AIA Foundation launches Regional Resilient Design Studio
The Studio is the first to be launched as part of the AIA Foundation’s National Resilience Program, which plans to open a total of five Regional Resilience Design Studios nationwide in collaboration with Architecture for Humanity, and Public Architecture.
| Jun 24, 2014
From Babylon to Sydney: The evolution of the modern workspace [infographic]
This infographic, made by Sunica de Klerk and originally posted by ArchDaily, shows the evolution of the office from 2400 B.C. to the present day.
| Jun 24, 2014
Intuit begins work on LEED Platinum campus addition
Demolition will begin this week as a precursor to construction of Intuit's new addition to its Mountain View, Calif., campus. The first of two additions, a 185,000-sf building on Marine Way, is expected to begin construction in August.
| Jun 20, 2014
Sterling Bay pulled on board for Chicago Old Main Post Office project
Sterling Bay Cos. and Bill Davies' International Property Developers North America partner up for a $500 million restoration of Chicago's Old Main Post Office
| Jun 19, 2014
First look: JDS Architects' roller-coaster-like design for Istanbul waterfront development
The development's wavy and groovy design promises unobstructed views of the Marmara Sea for every unit.