HOUSTON (BISNOW-DESS STRIBLING) -June 7, 2018 – The impact Amazon might have had on Houston is overstated, the speakers at Bisnow’s Houston State of the Market event said pointing out that companies operating in the Port of Houston are going to spend about $50B over the next five years on new facilities and new technology. That is 10 times the economic impact of Amazon.
One mark of Houston’s expanding economic base is what happened when oil prices tanked a few years ago. The short answer: no recession for Houston, though some parts of the local economy suffered.Did Houston ever stand a chance to be on Amazon’s shortlist? The consensus among the speakers: No. Houston does not have the technical workforce Amazon wanted, for one thing. The city also has a great lifestyle, but not the lifestyle that Amazon wanted — which includes major mass transit and a lot of walkability.
Houston has many strengths as an economy and a real estate market, but those aren’t among them. One challenge for Houston is to convince the country that it can fix its flooding problems — and then actually do it — but other than that, Houston is perceived as a growth city. It is the fourth-largest metro in the country, and on track to surpass Chicago to be No. 3 in the near future. Lionstone Investments Head of Acquisitions Andrew Lusk, whose company focuses on walkable mixed-use locations, said Houston is in favor with the investment community. “In the last 18 months, there have been several marquee transactions here,” he said.
Houston’s being taken seriously as a place to invest. The remarkable thing about the Houston office market, Lusk said, is that the energy downturn didn’t crush it like the 1980s downturn did. Office fundamentals are tough, because there is lot of new supply but not as much demand, and rents have been dropping. But the market isn’t on its knees. Johnson Development founder Larry Johnson, whose company has 17 master-planned developments underway in various markets, representing 74,000 single-family units and 6M SF of commercial space, said that 27,000 homes were developed in Houston last year. The region is No. 2 in the nation by that metric, only surpassed by Dallas, and this year the total may be 31,000 new homes. “There’s tremendous demand for homes and for lots,” Johnson said. “Land prices are rising, but overall Houston has a healthy residential market.”
The Houston economy needs to diversify more, and it is doing so, though the mainstays remain the port, medicine and energy, the speakers said. In the decades ahead, growth will be driven by diversification, including tech. What is at the heart of growth here? The same factors as always, magnified by the current U.S. economic environment. Houston is pro-business and the world knows it. Taxes and the cost of living are low, and there is no zoning. None of those are new factors when it comes to spurring Houston’s growth, the speakers said. But now, especially with the change in federal tax law, there is further impetus for people and businesses to relocate from places like New York and California. All of Texas is going to benefit from this dynamic, and arguably Houston most of all. Avison Young principal Darrell Betts, who specializes in high-profile investment sales, said there is a massive influx of companies from New York and California. “The change in the tax law is bringing people,” he said. “We’re the No. 1 U-Haul destination in the country.” JLL Senior Vice President Simmi Jaggi, who specializes in land sales, especially for retail, said Houston isn’t just on the national stage. The city is being eyed by foreign capital more than at any time in history.
Unlike many markets, urban occupancies for retail remains high, and there is strong growth in development and leasing in the suburbs as well. Food and beverage is on fire especially, Jaggi said. There are challenges for retail, however: land prices have increased, and retail developers are finding it hard to compete against multifamily developers. Betts also pointed out things Houston can do better. Traffic is a struggle. There is no sustainable mass transit from the airport to any major business district, which is a significant missing piece of the puzzle when it comes to economic development. Still, in the long run, Uber and other shared transportation services are going to be a major factor in getting around, lessening the need for individual cars, which might help Houston deal with its congestion problem.