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Tuesday, January 6, 2015

2015 Houston Market Predictions: Oil Prices, Real Estate Trends and Job Growth

By: Rand Stephens (Houston)

With a 50% drop in oil prices, the hot topic in Houston is “how low will it go”.  My Dad told me when I was a kid that “with every negative there’s a positive”.  Stay positive Houston…now is the time to roll-up your sleeves and look for opportunity! 

Below are my 2015 predictions:
  • There will not be a recovery in oil prices in 2015.  Clearly there’s a structural supply and demand issue that will take some time to work through.  Oil prices recently dipped below $50/barrel.  Even the energy analysts won’t make a call right now as to where prices will bottom-out.  However, I think the price will bottom-out this year and make a decent percentage gain off the bottom, but from a price per barrel standpoint, I don’t see that coming back this year anywhere close to the $90-$100/ barrel level.
  • Job growth in Houston will be positive but down considerably from the last several years.  There is still a large talent pool deficiency in the energy business as the baby boom generation moves through retirement.  Energy companies will hang on tightly to their talent in Houston.  Also, the petrochemical business expects a banner year in 2015, and Houston expects to see positive job growth in the Texas Medical Center.
  • Occupancy rates in the office and the industrial markets will decline but not enough to impact rental rates significantly.
  • Leasing volume will decline and landlords will offer more concessions like rent abatement and tenant improvement allowances to win lease deals.   Companies with good balance sheets who are expanding in 2015 will find attractive concession offers.
  • Sublease space will increase significantly as energy companies who tied up space anticipating future growth look to right-size their space in the short-term.
  • The vultures will be circling, but there won’t be blood in the streets with respect to real estate.  Everything is so much better capitalized since 2008, that it will take a dramatic drop in occupancy and rental rates for owners to feel the desperation of negative cash flow.  That said, there should be some better buying opportunities.  Most real estate investors will sit on the sidelines waiting to see what happens in Houston.  Smart investors will take advantage of less competition.
  • The Texans will make it to the play-offs!

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