Falling oil prices starting to affect Woodlands economy

Oil


From the workforce to real estate to retail, community leaders in The Woodlands agree on one thing: the economy is slowing down.


The downturn in the oil and gas sector is taking its toll on The Woodlands area, with the price of oil hovering around $40 a barrel compared to about $60 a barrel at the same time last year.


“I expect we’ll see layoffs in [late 2015] and during 2016,” said Jacci Kilgore, president of Woodlands Relo Group, which provides corporate employee relocation services. “That’s what the word is on the street.”



Workforce and real estate


Falling oil prices starting to affect Woodlands economyThe October numbers from the Texas Workforce Commission show employment in the Houston-The Woodlands-Sugar Land metro area is on a downward trend, with 4,000 job losses from December 2014 to September 2015 in the mining and logging sector, which includes oil and gas jobs.


In July Community Impact Newspaper reported residential real estate in The Woodlands had turned into a buyer’s market in the upper spectrums, with houses valued at more than $600,000 taking more than eight months to sell. Now, in the middle range of the residential market, houses starting at $300,000 are taking longer to sell, Kilgore said.


“[Energy] employers are not moving people about necessarily,” Kilgore said. “So many of the local companies initiated hiring freezes. We can see that of those layoffs, it’s generally project employees, engineers, and as those projects get canceled then that affects the midline of the market."


Falling oil prices starting to affect Woodlands economyFrom July 1 through September 2014, Woodlands Relo Group market data show houses in the $400,000-$499,000 price range took 26 days to sell on average. In the same time period in 2015, 19 less houses were sold in the same price range and took 38 days to sell on average.


“Sellers are finding that they have to be much more aggressive on their pricing and condition, and agents are having to be much more aggressive on their marketing practices,” Kilgore said.


Kilgore, who has worked as a real estate agent in The Woodlands for 20 years, attributes the slowing real estate conditions to oil and gas company layoffs.


“With the attritions, with the consolidations, with the hiring freezes and limited new job creations, we’re not seeing the kind of fourth quarter activity that we have in years past,”
Kilgore said.



Supporting industries


Falling oil prices starting to affect Woodlands economyOne 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 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.”


In addition to influencing the real estate market, the downturn has created a trickle effect to area restaurants.


Amerigo’s Grille on Grogan’s Park Drive has made adjustments, such as creating a lower-priced menu, to encourage businesses to hold luncheons in the restaurant, owner Casey Kosh said.


“The companies are still spending but are definitely more conservative during the current downturn in the oil industry,” Kosh said.



Office space vacancies


Falling oil prices starting to affect Woodlands economyThe office building leasing market has also been affected by the oil and gas downturn, Economic Development Partnership CEO Gil Staley said.


“The indicators in a down cycle—I’ve lived through several in Houston—first is typically a slowdown in office leasing for new office space,” said Paul Layne, executive vice president of master-planned communities for the Howard Hughes Corporation, which owns The Woodlands.


Layne defines slowdown by the confidence the decision makers have when taking on new office, home or retail lease commitments.


He said the Development Company is seeing more renewals and fewer moves into new spaces.


Falling oil prices starting to affect Woodlands economy“In a really good economy, people love to move and are attracted to the highest quality office buildings,” he said. “In a down economy, people are more hesitant to do that.”


Office space demand is generated by employment, said Jeff Beard, owner of J. Beard Real Estate Company. As long as employment is growing, there is a demand for office space.


Beard said availability rates are double what they were last year. Availability is occupied space but with an expectation the tenant is going to leave.


“That tells you where you are in the cycle when the leases are up, what is going to be vacant, and we’re headed that direction for increasing vacancies,” Beard said.


In the first quarter of 2014, the available square footage for Class A office space was 430,030. Eighteen months later, in the third quarter 2015, it was at 1.7 million.


Office space is spending more time on the market before it is leased as well. In the first quarter 2014, Class A office space spent 5.7 months on the market before it was leased. In the third quarter 2015, that number rose to 20.8 months.



Effects to township


Falling oil prices starting to affect Woodlands economyIn December 2014, Township Director John McMullan asked the finance department to forecast how the price of oil—$60 a barrel at that time—would affect the township’s budget.


“What I found was that the direct impact was surprisingly small,” McMullan said.


He said he discovered that since the top sales tax generators in The Woodlands are not oil-related, including The Woodlands Development Company, Kroger and Macy’s, they would not directly be affected by the price of oil.


Sales and use tax from mining and oil and gas extraction made up 3 percent of the township’s sales tax revenue and 1.1 percent of the total budget from January 2015 to November 2015, which has decreased by $500,000, directly attributable to the decline in oil prices, according to the township.


Falling oil prices starting to affect Woodlands economy“Although the township has experienced a decline over the past year in sales and use tax revenue from the oil and gas industry, it is important to recognize that sales tax from this particular source represents only 1 percent of the township’s total revenue budget,” said Monique Sharp, assistant general manager of finance and administration with the township.  “We carefully analyze financial data on a monthly basis and have not seen other areas of our sales tax base negatively impacted by what’s going on in the oil markets.”


Over the past 12 months, the township has seen its sales tax revenue increase by $3.7 million in non-energy sectors, Sharp said.


The longer The Woodlands is in a low oil price environment, the greater the risk to the finances, McMullan said.


“Nobody knows if this is a one-year-, two-year- or five- to 10-year event with these greatly reduced oil prices,” he said. “The perfect thing to do is be cautious, not cut corners on public safety. We should continue to spend the money to enhance and preserve our first-rate parks and pools and pathways.”



Offset factors


Falling oil prices starting to affect Woodlands economyWhile the first indicator of a slowdown is evidenced by vacant office space, local energy and health care services remain strong, Staley said.


“While we cannot confirm with definitive employee numbers, it is safe to assume that the downturn in oil prices has the ability to affect local workforce numbers,” he said. “At this point in time, energy is still our leading sector, and we feel it will continue to be a major part of our employee base.”


The 2015 workforce numbers will be released at the Woodlands Chamber’s Economic Outlook conference in February.


Staley said the health care sector is on the rise in The Woodlands and is the number two sector in workforce numbers, rising from 17 percent in 2014 to 18 percent in 2015. He said this will offset the gap in the energy sector.


“I’m not saying they’re going to be our salvation, but we’re encouraged because of the two new hospitals,” he said.


Two new hospitals under construction in The Woodlands are Houston Methodist The Woodlands Hospital, which expects to hire 650 new employees; and Texas Children’s The Woodlands Hospital, which is expected to hire 500 positions. Both facilities are on the I-45 and Hwy. 242 corridor.


Additionally, The Woodlands is home to many headquarters, such as Anadarko Petroleum. Staley said headquarter locations are typically the last group to engage in layoffs during a downturn.


“I’m extremely optimistic that this downturn will be short-lived, and the oil and gas experts that I talk to believe that prices will be back in the high $60s or $70s by third quarter of next year,” Layne said.

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