In January of this year I posted a blog with my Houston predictions for 2014. I wasn’t that far off! Below is a recap. Stay tuned for my 2015 predictions.
Here were my predictions for 2014:
- Prediction: 60,000 new jobs will be created
- End of the year recap: The latest year-over-year job growth is 120,000 jobs (as of November). I felt there would be a slowdown in the energy industry in 2014. I am obviously off a year, but the drop in oil price does not shock me. 60,000 new jobs might be a better prediction for 2015.
- Prediction: 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.
- End of the year recap: Right about this one. Class A rates were $31.18 in 2012, $32.78 in 2013, and $34.34 as of 3Q14. In 2013, rates grew by 5.13%. In 2014, they have grown by 4.76%. Class A rates have fallen slightly in the fourth quarter and will probably end the year around $34.20 which represents a growth rate of 4.33% for 2014.
- Prediction: 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.
- End of the year recap: Older buildings attempting to stay competitive through renovations was definitely a trend in 2014. Examples include 600 Jefferson, 800 Bell, Two Shell Plaza, Pennzoil Place and the Esperson building. Class B rate growth was 2.5% in 2013 and 3.88% in 2014 (as of 3Q). While the rate of growth was not more substantial than Class A (3.88% for Class B vs. 4.76% for Class A), the rate of growth for Class B properties improved in 2014 while Class A’s decreased.
- Prediction: 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.
- End of the year recap: Wrong on this one. Vacancy fell from 10.9% in 4Q13 to 10.3% in 3Q14. It held steady at around 10.3% throughout 2014 but will increase a little in the fourth quarter to around 10.4-10.5%.
- Prediction: 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.
- End of the year recap: True for the industrial and retail sectors. Multifamily apartments are questionable, although as we saw, condos have strong preleasing. For office, preleasing was at 70-80% in 2013 and 55-60% in 2014. Speculative construction ground-breakings were about 1.5 msf in 2013 and 3.7 msf in 2014. Most of the spec construction is in high-demand areas. Given the low vacancy and high demand, lenders remained conservative in 2014.
- Prediction: 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.
- End of the year recap: Yes!!! The Education and Health Services sector grew by 7.1% YOY second only to the energy industry which grew at 9.1%. According to Bill McKeon (EVP, COO & CSO at Texas Medical Center)- “We have assembled a highly talented group of individuals from across the medical center to shape the structure of the institutes that will position the Texas Medical Center as ‘the third coast’ for life science research, education, and innovation.”
- Prediction: 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.
- End of the year recap: Yes!!! The Port remains as the largest foreign trade port in the country after it surpassed New York in 2013. The Port is currently conducting a $68 million expansion that will deepen the terminals from 40 to 45 feet due in part to the Panama Canal. To speed up the channel dredge projects, the Port of Houston Authority bypassed the federal process and self-funded the projects through the port's operating revenues.
- Prediction: 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.
- End of the year recap:Yes!!! The NASA/Clear Lake submarket has posted YTD positive absorption for the first time since 2010. This year, Boeing was awarded a $4.2-billion contract by NASA to transport crews to the International Space Station. Boeing is now hiring an initial 100 employees who will be based in the NASA/Clear Lake submarket.