Long-term oil slump hinders Houston-area economy

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Despite the Greater Houston area surpassing an unprecedented 3 million jobs in October, many local business owners are bracing for the effects of a long-term oil slump.


Since July 2014, the price of oil has dropped from $105 per barrel to hovering around $40 for much of 2015, which will cause the energy industry to shed 19,000 jobs in the  Greater Houston area by the end of 2016, according to the Greater Houston Partnership.


Because of the energy sector’s influence on the Spring and Klein economy—where several oil and gas campuses reside and drive growth—the effect will reverberate to other industries in 2016, business leaders and economy experts said.


“I think we’re going to see a slowdown—we have to,” said Terry Lynch, president and owner of Spring brokerage firm JT Lynch Company LLC. “We’re going to see that oil and gas is still the big engine that drives this metroplex. It’s too big of an engine to not affect things.”


The uncertainty is already causing some business owners in Spring to hoard their cash and be more conservative about investments, said Barbara Thomason, president of the Houston Northwest Chamber of Commerce.


“There is a bit of uncertainty because we just don’t know what kind of an impact that it will have on our specific community,” she said. “And yet I see mixed messages. [There is] still some consumer confidence in the economy and specifically related to the price of oil, but we also see people [who] are holding on to their resources and holding off on decisions they normally would make.”


A diversified economic portfolio


Thomason and Lynch both said they expect a more diverse and resilient Houston economy to ward off a collapse similar to what the city faced in the early 1980s. The eight-year slump caused the Bayou City to lose 1 of every 8 jobs three decades ago, according to the Houston branch of the Federal Reserve Bank.


Other industries, such as health care, retail and finance are still growing rapidly and will limit the damage the oil slump is causing, local developers said. The health care sector has added 48,300 jobs over the past five years and is projected to add 9,000 more in 2016, according to the GHP.


In Spring, health care facilities are cropping up along major corridors, such as FM 2920, Hwy. 249 and I-45, to accommodate growing communities in unincorporated northwest Harris County. In the nine ZIP codes that comprise Spring and Klein, residents employed in the health care and social assistance industries rose by more than 1,800 employees from 2011-13, a 12.3 percent increase, according to U.S. Census data.


“The damage will be done and the reset will occur, but we have so much momentum with our port and hospitals—there are hospitals under construction all over the suburban areas and an enormous amount of health care jobs,” Trendmaker Homes President Will Holder said. “I think also that the [Houston economy] is sturdier and has a better center of gravity than it did at the beginning of the recession in 2008.”


However, Houston’s economy is still intertwined with oil and gas as 1 in every 25 jobs in the Greater Houston area is directly related to the industry, said Patrick Jankowski, senior vice president of research at the GHP. A large number of jobs are indirectly tied to the oil and gas industry as well, he said.


“The act of digging a well permeates the entire Houston economy,” Jankowski said. “The engineers and manufacturing workers are going to shop in grocery stores, go to the movies, eat out at restaurants—it extends to them as well.”


Long-term oil slump hinders Houston-area economyDiminishing demand


The slump has already affected demand in Spring-area developments, such as master-planned community Springwoods Village, said Keith Simon, executive director for Springwoods Village developer Coventry Development Corp.


The community is anchored by ExxonMobil’s $1 billion corporate campus that was completed in December and Southwestern Energy’s 26-acre campus.


Springwoods Village has seen a decrease in demand for office space in CityPlace—the community’s town center—which is expected to feature 4 million square feet of office space and 400,000 square feet of retail. CDC expects to break ground on the mixed-use development in 2016, Simon said.


Despite diminished demand for office space, Springwoods Village has continued to see strong demand from retail, health care and financial institutions from the Greenspoint area, Simon said. 


“Obviously prices have slowed new office activity metrowide—there’s no doubt about that,” Simon said. “But we feel like we’re still seeing good activity, and we’re confident we’re going to land an office tenant for CityPlace [this] year.”   


Lynch, who has worked in Spring since the late 1980s when he brokered a deal for David Wayne Hooks Airport, said he expects retail, hospitality and restaurants to grow in Spring near major developments, such as The Vintage and Springwoods Village, and office development to struggle in 2016. 


“The office market is going to contract,” Lynch said. “Office will take the biggest hit, second is industrial. When you look at our region, we’ve diversified, but we haven’t diversified so much that we won’t catch a cold.”


Long-term oil slump hinders Houston-area economy


Affected industries


The local manufacturing and real estate industries could be among the most heavily affected throughout the downturn, according to the GHP.


The manufacturing industry lost 17,200 jobs in the Greater Houston area through the first 10 months of 2015, according to GHP. Meanwhile Houston-area Realtors sold 10 percent fewer homes in November than the same month in 2014, according to the Houston Association of Realtors.


“That effect is already starting,” Holder said. “There are [real estate] developers that are postponing the development of certain lots that will put those in next year instead of this year. I think the biggest change will be that we slow down delivery of new homes and lots to match the market.”


Holder also said he expects the real estate market in the Greater Houston area to shrink over the next two years from about 25,000 new homes built per year to about 18,000 per year. Although net job creation and home purchasing is directly linked, he is confident the market will not dip below 18,000 because there are many potential homebuyers who are long-term renters.


Trendmaker Homes sells homes in Spring-area communities Benders Landing and the Lakes at Creekside.


“I think it will be a smaller market for us to participate in over the next 12-24 months, and it will be a relatively soft landing,” he said. “There’s a lot of people in rental homes right now. So these people in rental homes are not going to rent forever. They’re going to unfold out into the marketplace over the next 24 months.”


Spring business owners must continue to invest wisely and keep a healthy cash flow in these uncertain times, Thomason said.


“You’ve probably heard the phrase ‘cash is king,’” Thomason said. “It’s time to have kind of a moderation. I don’t think it’s time for people to hoard. I don’t think that’s healthy for the economy, but I do think that people may be very deliberate in their decisions about investing.”

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