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Tuesday, November 4, 2014

Oil Prices and the effect on Houston Real Estate

By Rand Stephens (Houston)

The recent drop in oil prices followed by Goldman Sachs’ recent bearish report that prices will continue to fall, raises the hair on the back of the neck for those of us in the Houston real estate business who lived through the 1980s oil crash.

For those who are too young to know what I’m referring to with regards to the oil crash in the 80’s, further research is warranted on this topic, if nothing else, but to gain an appreciation for an epic economic collapse that epitomized the phrase “what goes up, most come down”.

The 80’s economic collapse in Houston was an economic tsunami of sorts, with a similar economic affect to what happened to the national economy in the Great Recession beginning in 2008, but without a government bailout.  However, since 1994, after paying for its economic sins in the 80’s with a massive purging of everything in excess, including jobs, the Houston economy has done nothing but go up.

Even during the Great Recession, the Houston economy barely skipped a beat.  Of course, it is important to point out that oil prices were very stable during the Great Recession, which is the major reason the Houston economy didn’t falter.  Prior to the Great Recession, oil prices peaked at $145/barrel, fell to $35/barrel in April of 2009 and then quickly recovered to the $90-$100/barrel range, where they’ve been until now.

I think it is safe to say, that if the price of oil had stayed at $35/barrel in 2009 instead of quickly recovering to the $90-$100 range, the Houston economy would not have enjoyed the same robust growth that it has seen over the last 5 years.

However, since the bust in the 80’s, Houston has weaned itself from excess debt.  So, while negative job growth is a killer for any economy, Houston has proved to be very resilient because, in general, everything is much better capitalized.   

At the beginning of this year, I blogged my predictions for 2014.   One of my predictions was that Houston job growth would slow to around 60,000 jobs.  Well, the trailing 12-month job growth in Houston is 107,000.  Unless something happens drastically in the next two months, I’m going to be very wrong about this prediction.  But the top economists who follow Houston are also going to be very wrong, since they predicted a slowdown in Houston job growth as well.  So, I guess that puts me in good company!

The bottom-line is, no one knows what is going to happen with Houston job growth, or oil prices, including Goldman Sachs.  However, I do sleep better at night knowing these important things about Houston:
  • Houston is the energy capital of the world, and the industry’s intellectual and financial resources continue to move to Houston.
  • The City’s real estate fundamentals are strong and new projects are being well conceived and well capitalized (view the latest 3Q office report here).
  • Houston still has a low cost of living compared to other major markets, it is culturally diverse and is filled with hard working nice people.

What does all this mean for Houston real estate?  I think it bodes well.  No doubt if oil prices continue to drop it will have an effect on job growth, however, Houston is fundamentally sound and is well positioned to handle whatever comes its way.

Thursday, October 30, 2014

Giving back: A day spent volunteering at the Dallas Children’s Advocacy Center



By Kathryn Young (Dallas)

On October 9, 2014, Avison Young’s Dallas-based employees were reminded of the importance of giving back to the community.

As part of the firm’s first-ever Global Day of Giving, we proudly partnered with the Dallas Children’s Advocacy Center (DCAC), and spent the day assisting the charitable organization’s staff in the outstanding services they provide for child victims of tragic circumstances. Avison Young’s Global Day of Giving involved employees in all of the firm’s 60 offices in Canada, the U.S. and Europe. Each Avison Young office chose a local charity with which to volunteer. The Global Day of Giving will be held annually in October in all Avison Young markets and continually expand as the company opens new offices around the globe.

In Dallas, we chose the DCAC as our 2014 charity based on a recommendation from David Cooke, a Principal based in Avison Young’s Dallas office – and for good reason.

Nearly 3,000 children – a staggering number – walked through DCAC in 2014. These children are victims of extreme cases of domestic violence and/or sexual abuse. On average, the victim is a girl, aged nine or ten, who has been sexually abused by someone she knows and trusts. These children arrive by way of Child Protective Services, the Dallas Police Department, one of the 25 other police departments in Dallas County, or a hospital. Sometimes, they are brought straight from school, with no time to pack clothes or items that they would miss terribly, like a special teddy bear.

The DCAC provides these young victims with a warm, child-friendly environment to help buffer their emotional pain. Through loving donations, the children are given toys, stuffed animals, clothes, school supplies, and essential day-to-day items. There are several therapy rooms where children are provided with art, music, play, and even animal-assisted therapy.

One of these therapy rooms has a doll house version of a courtroom, with dolls playing the roles of lawyers, jurors and judge. In a better world, there would be no need for such a toy, but here, there is. While it is sad that such a toy should exist, it can do a great deal to help these innocent children, victims of unthinkable crimes who are too young to understand the court system. This toy is used to help them prepare for court, where they will have to face their perpetrator, a scary prospect for a child to imagine.

We noticed many beautiful quilts, stacked on shelves in the Clothes Closet, hanging on walls as decoration, or laid on sofas in waiting rooms. Erin Bannister, Director of Operations at DCAC, told us that they were all handmade by the Quilters Guild of Dallas. Erin said the guild had donated hundreds of quilts. These quilts gave a warm feeling of comfort, a very nice touch. Each quilt is a loving donation by the women of the Quilters Guild.

We worked in the Clothes Closet, directed by Becky Aguilar, Volunteer Coordinator at the DCAC, organizing donations and loading shelves with containers of children’s clothing, toiletries, diapers, and brand new toys. We were told that the teenage victims’ group needed more donations, and DCAC staff suggested art sets, sketchbooks and drawing supplies. We also worked in the visitation rooms, cleaning tables and chairs, and cleaned all of the children’s toys and placed them back in the dollhouses and toy trunks.

While it is tragic that such a place is necessary, we all felt that our day was well spent, and several of us mentioned that we would like to volunteer our services to the DCAC again.

Our thanks to the unselfish staff and volunteers at the Dallas Children’s Advocacy Center for what they do and for allowing us to be a part of the healing process – now, and in the future.

(Kathryn Young is a Client Services Coordinator based in Avison Young’s Dallas office.)

Monday, October 13, 2014

Industrial Development: A Key Contributor to the Commercial Real Estate Recovery

By: Rand Stephens

U.S. manufacturing is thriving again, returning the demand for industrial space to pre-recession levels. The U.S. industrial sector is leading the commercial real estate recovery with historically low vacancy rates and expanding speculative construction. Developers are far more disciplined than the prior cycle and the portion of speculative development has only recently become more in line with a healthy real estate market. Given current demand, it does not appear that rents will peak or experience a correction anytime soon even with new speculative deliveries. So, what is driving industrial real estate development?

Industrial production, which correlates highly with industrial demand, rose to a record level at the end of 2013 and continues to advance through 2014. As manufacturing sciences progress and consumers expect a quicker delivery of products, warehouses and distribution centers are adapting which translates to renovating existing structures as well as new construction.

In the Houston market, the expansion of oil and gas manufacturing and equipment storage facilities has always driven the city’s industrial market. Current events in the Middle East have created a renewed focus on domestic energy production as well as, potentially, the export of energy commodities thus cementing the demand for industrial space. Apart from energy exports, the market for industrial space near the Port of Houston is being further strengthened by the expansion of the Panama Canal in 2015. 

Houston’s overall industrial vacancy rate decreased in the third quarter, landing at 4.5 percent. The outlook for the remainder of 2014 continues to look good for industrial development, with strong year-over-year growth.

Friday, October 10, 2014

Fall 2014 Canada, U.S. and U.K. Commercial Real Estate Investment Review



By Mark E. Rose (Toronto)

Dispositions continue to drive healthy investment levels in most Canadian markets, while the lack of quality product being offered for sale masks investors’ true demand for acquisitions. This situation has prompted some Canadian investors to deploy capital to other countries – especially the U.S., where some markets are seen as being undervalued. In the U.S., improving leasing fundamentals have led to a robust investment environment with sales performance either on par with, or up from, one year ago.

These are some of the key trends noted in Avison Young’s Fall 2014 Canada, U.S. and U.K. Commercial Real Estate Investment Review, released today. You can read the full report here:  http://www.avisonyoung.com/fileDownloader.php?file=files/content-files/Research/Links/2014/AYFall2014CanadaUSUKInvestOct8_14Final.pdf


The report covers commercial real estate investment conditions in 29 regions: Calgary, Edmonton, Montreal, Ottawa, Toronto, Vancouver, Atlanta, Austin, Boston, Chicago, Columbus, Dallas, Denver, Houston, Las Vegas, Los Angeles, New Jersey, New York, Orange County, Philadelphia, Pittsburgh, Raleigh-Durham, San Diego County, San Francisco, San Mateo, South Florida, Tampa, Washington, DC and London, U.K.

We are seeing stable-to-increasing investment deal velocity, more so in the U.S. than in Canada, because of the pricing differential – although it’s narrowing for core assets in primary markets. I believe that we are at a short-term pricing top in Canada with bigger deals being fewer and farther between.

However, given the compressed yield environment to date, I believe the next wave of deals will more than likely be spurred on by rising interest rates, forcing some over-leveraged owners to sell, while others will find that buyers can’t pay what they used to. With all that anxious surplus capital and limited supply, I think there is sufficient pent-up demand in Canada, with a variety of investors waiting to get in at slightly better pricing. This will ultimately result in a re-pricing of commercial real estate assets.

Investment sales activity in the U.S. continues to benefit from the continued recovery in the economy and improving leasing fundamentals. By and large, office building dispositions drove investment dollar volume in the first half of 2014 to the tune of $38 billion (USD) – a result of improving employment levels and rising rental rates.

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