Cities' economies surviving plunge in oil prices

Local officials predict the Fort Bend County economy will continue to thrive despite the downturn in the oil and gas industry.

Local officials predict the Fort Bend County economy will continue to thrive despite the downturn in the oil and gas industry.

Much of the Greater Houston area is experiencing an economic slowdown due to cheaper oil, but some areas—including the Sugar Land and Missouri City area—are faring better than others.


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 In September, oil prices dropped to $41.60 per barrel, according to the U.S. Energy Information Administration, compared to $86.87 per barrel in September 2014.

Despite job losses in the oil and gas industry, Jeff Wiley, president of the Greater Fort Bend Economic Development Council, said the Sugar Land and Missouri City area is faring well. He said significant investments in the health care and retail industries as well as a growing tax base, are factors that continue to promote economic stability in Fort Bend County.


“We have a very diversified economy,” he said.


Despite the downturn in the industry, both cities are seeing steady increases in sales and use tax revenue.



Regional effect


Falling oil prices in 2015 have led to a number of layoffs and job losses in the Greater Houston area. The Texas Workforce Commission’s employment statistics reported 16,300 jobs were added to the state’s labor market in November, down from the 20,000 jobs added in October.


Of all new Texas jobs in November, 1,600 were in the mining and logging industries, which includes oil and gas extraction. This represented a less than 1 percent increase from the previous month but a nearly 10 percent decrease from November 2014.


In addition, the unemployment rate for the Houston-The Woodlands-Sugar Land metro area—which is not adjusted seasonally—was 4.9 percent in November, compared to 4.8 percent the previous month and 4.3 percent in November 2014.


Mining, Logging, Oil, & GasOne in every 25 jobs in the Greater Houston area is directly related to the oil and gas industry, said Patrick Jankowski, senior vice president of research at the Greater Houston Partnership. A large number of these jobs are also indirectly tied to the oil and gas industry.


“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.”


The GHP’s 2016 Houston Employment Forecast predicted the Greater Houston area’s energy sector would lose about 9,000 jobs from December 2015 to December 2016, but also predicted jobs would be added in most other sectors.


“That [job] growth will fall well below the recent five-year average of 98,000 per annum, and likely below the 20-year average of 52,800 per annum, but the region will create jobs,” the report stated.



Local employment


Sugar Land and Missouri City are poised to resist the larger effects of the downturn in the oil and gas industry, Wiley said. In fact, Schlumberger and Nalco Champion, two of the largest energy firms in the county, are growing locally.


“[The cities’ financial stability] has really been as a result of these two successful corporate relocations,” he said.


Declining Sales Tax: Mining, Quarrying & OilIn October, Schlumberger—a Houston-based oil field services company—announced plans to relocate its headquarters from the Galleria area to its Sugar Land campus. The move is expected to create more than 500 new jobs and $200 million in capital investment, according to Sugar Land city officials.


Last year, Nalco Champion—an Ecolab special chemistry program that assists with oil and gas operations—confirmed it would expand its Sugar Land campus by constructing a 133,500-square-foot headquarters in Sugar Land.


Wiley said as many as 800 to 1,000 people would move back to the area for the jobs created by Nalco Champion and Schlumberger.


“We’ll start to see employment increase from [the relocations],” he said.


Fort Bend County has also benefited from growing tax bases as a result of new development projects, particularly housing construction.


“Generally speaking, we have a high-growth county,” Wiley said. “Master-planned communities are still attracting people.”


Fort Bend County has 14 master-planned communities, which is more than any other county in the state of Texas.


Employment for All Industries (Non-Agricultural)Imperial Market—a 25-acre mixed-use development being built at the site of the historic Imperial Sugar refinery as part of the 720-acre Imperial master-planned community—has not been hindered by the slide in the oil and gas industry, Imperial Market developer Geoffrey Jones said.


“The fact that it’s a mixed-use project … broadens the playing field in the type of tenants we sign,” Jones said.


Office space in a mixed-use development is typically the last to lease, he said, but tenants come because they want to be near the site’s retail and housing.



Development


Wiley said the county has not seen much of a drop in retail or office development projects either.


Commercial Real EstateLisa Bridges, director of market research for Colliers International in Houston, said the oil and gas industry’s reach is limited around Sugar Land and Missouri City and most of the affected commercial real estate is in the Katy Freeway submarket. She said Fort Bend County had 174,338 square feet of available office sublease space in mid-December, accounting for 1.8 percent of total space inventory. Sublease space increased from the 157,619 square feet available in December 2014.


Houston’s sublease space was at 7.7 million square feet in the third quarter of 2015, or 3.4 percent of all office inventory. Space increased from 4 million square feet, or 1.9 percent of the market, available at the same time in 2014.


Barkley Peschel, vice president for Colliers International in Fort Bend County, said some clients have called him about temporary lease reprieves. Overall, investors still feel positive about the market.


“The medical market has really been the standout,” he said.


For example, Houston Methodist Sugar Land Hospital, Memorial Hermann Sugar Land Hospital and Kelsey-Seybold Clinic are expanding their services in Fort Bend County to deal with a population increase of nearly 20 percent in the past decade.



Housing


When it comes to residential real estate, data from the Houston Association of Realtors for Fort Bend County showed home sales slowed in 2015 from the previous year, with a greater decline among properties priced under $400,000.


Residential Real Estate“In the past, it didn’t matter what you put out there,” said Jenn LaRocca, marketing director at Cathy Stubbs Realty in Sugar Land said. “But buyers are getting pickier, and sellers must be more conscious about home presentation.”


However, Israel Flores, a Cathy Stubbs buyer agent, said he has personally seen cheaper homes sell quicker in the last two months. He warned this trend might not be purely due to falling oil prices but rather because buyers are growing weary of rising home prices altogether.


“We are seeing houses that probably would have sold for $525,000 that are coming down to $475,000,” Flores said.


Echoing Flores’ assessment, Peschel described a slowdown in new home sales and predicted developers would become more conservative.  However, Peschel said consumer demand for homes in the area remains high.


“We have less than a six-month supply of single-family homes available for sale,” he said.