State of the Industry

HOUSTON—The Apartment Association held its annual state of the industry event last week. Industry leaders and analysts discussed Harvey-related issues, recent economic trends, job growth, forecasts, rental rate and occupancy trends, new construction developments, technology and marketing trends.

The featured panelists included Stacy Hunt, moderator, Greystar; Ric Campo, Alliance Camden; Cyrus Bahrami, Alliance Residential; John Boriack, Veritas Equity Management; Patrick Jankowski, Greater Houston Partnership; and Bruce McClenny, Apartment Data Services. The breakfast event was held at the Hilton Houston Post Oak at 2001 Post Oak Blvd.

The panel indicated that the economic downturn was at its worst in August 2017, followed by a gradual recovery in September. They also indicated that employment is now at an all-time high. However, the jobs that were gained don't pay as much (less than $60,000 on average) as the jobs that were lost (paying more than $70,000 on average).

Moreover, oil prices are up. The challenges are that the industry is not yet fully profitable. Higher oil prices are needed for a significant number of consecutive quarters for the industry to feel comfortable that prices are going to stay there.

Once profitable, oil companies will pay debts, restore dividends and put money back into drilling projects, followed by hiring. However, even if oil prices remain stable, a hiring surge in the energy industry is not expected, said the panel.

The industry found a way to increase production without adding employees, by using better technology, being more careful of where to drill and by using better systems. The job growth is occurring in other sectors outside of energy.

The panel indicated that the US economy is growing and employment remains strong. There have been a couple of quarters of the GDP at more than 4% and this growth should continue well into the next year.

If the US is doing well, it supports Houston, the panelists observed. In addition, tax reform is going to benefit the consumer. Some people will have several thousand dollars in tax refunds to support further growth in the region.

Houston is second in metro exports. There are 5,000 firms in the region that engage in trade and 60% of the region's GDP is tied to export. Houston's economy will be expanding at least for the next three to four months.

In spite of recent storms, Houston managed to grow employment. Although Harvey caused a lot of problems, it did not stop growth, the speakers observed. Â

Despite all of the oil volatility during the last 30 years, Houston has added 1.2 million jobs. Oil will always be important to this economy, but it is not the sole determinant.

“Before Harvey struck, we fundamentally thought that Houston was on the mend and it would be getting better in 2018. During the summer, we started feeling better about Houston,” said Campo. “We've started to see new starts fall, and negative new leases flatten and maybe move up a bit. We actually took a position in July/August that Houston was on a recovery road and we actually announced that we will start construction on a new development downtown: a 20-story tower across the street from Toyota Center.”

For the development pipeline in 2019 and 2020, there is more similar construction as Harvey pushed the math forward one year.

“Maybe new development won't lease up as fast in Energy Corridor, but we are very bullish about what is going on in Houston to the point where we are making an investment here,” said Campo.

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Lisa Brown

Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.