Q2 2012 Houston, Texas Commercial Real Estate Economy

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Q2 2012 Houston, Texas Commercial Real Estate Economy

Adios, recession. While much of the nation continues to slowly dig out from a deep recession and job growth as a whole remains problematic nationwide, Houston, with respect to employment, has left all effects of the recession behind. Indeed according to data provided by the U.S. Bureau of Labor Statistics, non-farm employment in the local Metropolitan Statistical Area (MSA) as of June 2012 was up fully 2.7% (77,200 jobs) from June 2008, a remarkable statistic given current national trends and conditions. Recent local job growth, accordingly, has been very strong: non-farm employment as of mid-year 2012 was up fully 3.5% (91,500 jobs) from 12 months prior and was up 7.9% (152,700 jobs) over 24. These are numbers that indicate not only full employment recovery but suggest the boom-style growth cycles long associated with the Houston area economy.

Again, as in the past, the Energy sector, with its far-reaching influence, plays a leading role. It contributes to growth in, for example, the Professional and Business services sector and the related office market and, via new office and residential construction, to the construction sector as well. Employment in Professional and Business services as of mid-year was up 2.4% (9,400 jobs) from a year earlier and was up fully 9.3% (30,400 jobs) since mid-year 2010. And employment in the construction segment per the latest June was up 4.2% (7,300 jobs) since the previous June. Also in the Energy sector, meanwhile, petrochemicals manufacturing is thriving. “The chemical industry is at a major turning point, which some experts say could contribute to a manufacturing resurgence,” Houston Business Journal reported in late July. “The popularization of hydraulic fracturing in shale rock formations has led to the production of vast amounts of cheap natural gas, which is used as a chemical feedstock… Chemical companies from around the world are flocking to the Houston area to lay down millions, and sometimes billions, in investments to take advantage of the available feedstocks.” Employment in Manufacturing in the MSA as of June was up 4.0% (9,100 jobs) from 12 months earlier and was up fully 9.0% (20,000 jobs) over 24.

The need for economic diversification, meanwhile, has been a longstanding theme here given the economy’s pronounced vulnerability to cycles in the often-volatile energy sector. To that end, health care, an effect in part of the huge Texas Medical Center and its recent expansion and to major medical research facilities, has become a substantial growth sector itself. The BLS reports a gain of wholly 8.7% (27,200 jobs) in employment in the Education and Health services segment sector over the past two years. Moreover, expansion of Houston’s port facilities, which includes a proven ability to attract major distribution business from major national retailers (such as Walmart and Home Depot) along with ties to international trade flows, has enhanced Houston’s role as a major distribution center. Thus, employment in Trade, Transportation and Utilities over the latest 12-month span according to BLS data was up 3.4% (18,000 jobs). The 24-month increase was 5.9% (30,400 jobs).

Indeed, at a time in which most local economies, at best, show selective modest job growth, there seems to be no weakness in Houston—except for ongoing notable losses in Public sector employment. However, these, as indicated, have been rendered effectively moot (for the economy as a whole) by the huge private sector gains. Even the local housing market is recovering. “Housing is gaining momentum,” the Journal reported in July, “as new and existing home sales increase, prices firm up and new construction activity accelerates to meet growing demand.” Indeed, “Houston home sales continued to break records in June,” wrote the Journal in a separate July report. According to Houston Association of Realtors as cited in the report, the 7,575 sales that closed that month were up 15.3% year-over-year. At $171,000, the median selling price was up 6.9% even as total dollar volume “jumped” 20.2% to nearly $1.72 billion. In addition, pending sales were up and inventory remained unchanged since May. Foreclosures, meanwhile, were down 2.9% year-over-year, while the share of total sales claimed by properties in foreclosure was 16.8%, down from 27.8% in January.

In another sign of the resurgence of the local housing market, the U.S. Bureau of the Census reports 19,520 residential building permits awarded in the MSA through the first half of 2012, up fully 30.0% from the comparable period of 2011. Of this sum, the 14,350 permits issued for detached single-family homes were up 26.1%. Lending support across the board, meanwhile, is Houston’s strong population growth profile. According to Moody’s Economy.com, MSA population grew by 1.9% (116,800 personsnet) in 2011; a gain of 2.0% (123,900 residents) is forecast for 2012. New residents in such volume represent substantial demand for goods, services and commercial and residential real estate product.