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Wednesday, January 8, 2014

Houston - What's Next?

By Rand Stephens (Houston)

2013 was another good year for commercial real estate in Houston.  Driven by an excellent year of overall job growth…approximately 3.1% year-over-year…all boats were floated by the rising tide.  Office, industrial, retail and multi-family all saw substantial increases in rental rates and property values.

However, in the second half of 2013 the Houston economy started to see a slowdown in job growth due to a slowdown in the energy industry.  Looking into 2014, Houston’s job growth will be lower than 2013…around 2.5%...but at a more sustainable level than at the torrid pace seen over the last several years.
Here are my predictions for 2014:
  • 60,000 new jobs will be created.
  • Rental rate growth in all class A properties will increase at slower rates than 2013 due to enough new inventory hitting the market to provide a rental rate cap on the high-end of the market.
  • Rental rate growth in class B properties will be more substantial than class A as class B properties change hands, get upgraded and become more attractive to the user.
  • Vacancy rates in the office market will go up slightly due to new inventory coming online and vacant space left behind as companies relocate to new buildings.
  • Lenders in Houston will continue to be conservative with their underwriting of new development and acquisitions; this will insure ongoing fundamental stability in all product types.
  • Houston will continue to grow as a major center for the medical industry leveraging off of the Texas Medical Center’s growth and prominence as one of the top medical centers in the world.
  • The Port of Houston will grow more than expected due to infrastructure improvements, widening of the Panama Canal and logistical problems in other major US ports.
  • Houston Republican congressman, John Culberson, will take over the appropriations subcommittee that oversees the Johnson Space Center.  With Culberson’s appointment, the Johnson Space Center will start growing again and add unexpected job growth.
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