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2020-2021 Houston Economic Outlook

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Economic Trends

Commentary by Patrick Duffy | President | Houston

Last January, we predicted steady growth for the Houston economy barring a “black swan” event and mentioned the “new Corona Virus in China” as an example. Little did we know that the virus would end up being the Godzilla of black swan events. On the heels of what had been a very robust economic expansion, the virus and the global governmental response of massive shutdowns created one of the most dramatic economic crashes in the history of the world. U.S. GDP dropped an unprecedented 31.4% in Q2. While we saw a substantial recovery in the U.S. in Q3 (also an unprecedented 33.4%) and continued recovery in Q4, the lockdowns continue in many states. Most companies in the office sector are still in a work-from-home posture with their employees. Government and Federal Reserve Bank stimulus efforts continue to attempt to mitigate the permanent damage to the underlying economy caused by the virus and associated responses.

Houston had to Cope with a Double Impact

We had the same lockdown approach as most large metro markets, and the global shutdowns reduced oil and gas demand by approximately 15% resulting in the lowest oil prices in history. In April of 2020, oil traded at a NEGATIVE $40 per barrel. The U.S. and Canadian rig counts, historically averaging approximately 1,500 active rigs, dropped to 278 in June before “recovering” to 410 at year-end. With only one-third of average rigs active, the companies engaged in engineering and oilfield services that support the upstream energy sector were hit very hard.

The good news is that energy demand is projected to surpass supply through year-end 2021 and oil prices have recovered to the high $40s per barrel as of this report. All indications are that we will see oil prices with upside pressure as reserves tighten and new production gradually comes online. This bodes well for the energy sector to see some stabilization and recovery in 2021.

Small businesses, especially restaurants and local “mom and pop” retailers, have been hit the hardest by the lockdowns with companies moving their employees to work-from-home and out of the typical high-density office markets. These small businesses depend on walk-in traffic, which, even with the lockdowns partially or entirely removed, are still missing the usual client base supplied by nearby office users. Estimates of permanent closures for small businesses are in the 20% range nationally, and Houston seems to be following that trend.

The Federal Reserve has signaled that they will continue to be accommodative with close to zero interest rates and liquidity injections as may be required through 21. The incoming administration has signaled massive plans for new spending and, unfortunately, potential tax increases; however, it is unlikely that tax increases will be implemented before 2022. These supportive monetary and fiscal positions should continue to fuel recovery in 2021.

Other states, notably California, are losing companies and residents to Texas. The recent relocation of Hewlett Packard to Houston is a prime example. We expect this trend will continue to the benefit of Texas cities, including Houston. Provided the vaccines prove effective and the global economy continues a steady recovery, we believe the bottom has been reached in Houston and that 2021 will see moderate job growth and continued economic recovery. The jury is out on the long-term impacts on inflation of all the money printing that we have seen over the past several years. Real estate has long been a strong inflation hedge and will continue to be an asset of choice for those looking for returns and inflationary hedge over the mid-term.

 
   

Population

Houston ranks among the leading metropolitan areas in the U.S. in population growth and is the fourth largest city and the fifth largest Metropolitan Statistical Area (MSA) in the nation. Houstons’ MSA consists of nine counties, and as of 2020 the region’s population increased by 7.6% since 2015, growing by 507,666. The population is expected to increase by 5.4% between 2020 and 2025, adding 388,203 new residents.

  2021_HEO_Population_Millennials     Houston-The Woodlands-Sugar Land, TX has 1,581,521 millennials (ages 25-39). The national average for an area this size is 1,456,929.  
   2021_HEO_Population_Retiring    Retirement risk is low in Houston-The Woodlands-Sugar Land, TX. The national average for an area this size is 2,077,542 people 55 or older, while there are 1,606,834 here.  
   2021_HEO_Population_RacialDiversity    Racial diversity is high in Houston-The Woodlands-Sugar Land, TX. The national average for an area this size is 2,818,578 racially diverse people, while there are 4,575,975 here.  
         

 

Jobs

From 2015 to 2020, jobs increased by 6.3% in Houston-The Woodlands-Sugar Land, TX from 3,227,863 to 3,431,154. As the number of jobs increased, the labor force participation rate decreased from 63.1% to 62.1% between 2015 and 2020. Concerning educational attainment, 33.1% of Houston-The Woodlands-Sugar Land, TX residents possess a Bachelor’s Degree or higher (0.9% above the national average), and 6.7% hold an Associate’s Degree (1.5% below the national average).

Recently, Houston’s non-farm employment sector lost 141,300 jobs annually (November 2019 to November 2020) due to the effects of COVID-19; however, according to the U.S. Bureau of Labor Statistics, the unemployment rate has recently decreased as 75,200 jobs have been added in the past three months. Houston’s industry sectors that posted recent gains over the past quarter include non-durable goods, trade/transportation/utilities, retail trade, professional/business services, education/health services, leisure/ hospitality and government.

Looking ahead, Houston’s job growth is expected to increase 7% over the next five years.

  2021_HEO_Jobs_Graphs   2021_HEO_Jobs_Largest Employers  

Houston’s MSA ranks fourth among U.S. cities with the most Fortune 500 headquarters with twenty-two on the list. Four of the top five are in the energy industry.

Business Climate

Houston has long been recognized among the most competitive U.S. cities for corporate relocation and expansion activity and is internationally recognized as the global energy capital. The Houston-Woodlands-Sugar Land region operates the largest petrochemical plants in the U.S., the Houston Ship Channel. In addition to its diverse industries and educated/skilled workforce, a key factor underscoring Houston’s business appeal is the fact that it is one of the least expensive major U.S. cities in which to conduct business. Significant benefits include the absence of state or city income taxes, no state property tax, as well as a moderate cost of living index. Houston’s strategic location and core strengths, including an expanding healthcare sector, cutting-edge medical advancements, technological breakthroughs across industries and strong import/export trade activity, uniquely position it to play a vital role in meeting national and global market demands. Houston has and will continue to stand as a global leader among U.S. metros and the world.

Houston's Major Industries

 2021_HEO_PortHouston   Port Houston is the #1 port in the nation for waterborne tonnage, foreign waterborne tonnage and vessel transits. Port Houston is a 25-mile-long complex of about 200 private and public industrial terminals along the 52-mile-long Houston Ship Channel. 
 2021_HEO_EnergyCapital    Houston is the Energy Capital of the World and is home to more than 4,000+ firms in the region with more than 40% of the nation’s base manufacturing petrochemical capacity.
 2021_HEO_AirportSystems    Houston’s airport system consists of 3 airports, supports more than 190K regional jobs and contributes more than $36.4 billion to the local economy. The airport system served more than 58.7M passengers in 2019 and 41M year-to-date November 2020.
 2021_HEO_TMC    The Texas Medical Center (TMC), the World’s Largest Medical Complex (1,345 acres) consists of 61 member institutions. TMC’s workforce consists of more than 106K employees. The TMC sees 8M+ patients annually including 16K international patients.
 2021_HEO_NASA    NASA’s Johnson Space Center resides on a 1,700-acre campus and employs around 11K. Major employers within the complex includes some notable companies like The Boeing Company, Lockheed Martin and Jacobs Engineering. Axiom Space plans to build the worlds first commercial space station at the Houston Spaceport at Ellington Field.

 

Houston's Fortune 500

Rank  Company 

Revenues
($ Billion)

 27   Phillips 66    109.6 
56   Sysco    60.1 
93    ConocoPhillips   36.7
98    Plains GP Holdings   33.7
 101   Enterprise Products Partners   32.8
129   Baker Hughes   23.8
142    Halliburton    22.4
 148   Occidental Petroleum    22.0
186    EOG Resources   17.4
207   Waste Management   15.5
 242   Kinder Morgan   13.2
260   CenterPoint Energy   12.3
 261   Quanta Services   12.1
264   Group 1 Automotive   12.0
319   Calpine   10.1
329   Cheniere Energy   9.7
365   Targa Resources   8.7
 374   National Oilwell Varco   8.5
382   Huntsman   8.6
391   Westlake Chemical   8.1
465    Apache   6.4
496   Crown Castle International   5.8



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2020-2021 Houston Economic Outlook

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Lisa Bridges

Director of Market Research

Houston

Lisa joined Colliers in 2010 as Director of Market Research and has 37 years of commercial real estate experience. Lisa initiates proactive market research projects to further the business goals of the company. She writes and prepares 29 market reports annually, including quarterly reports on Houston's retail, office, industrial and healthcare properties.  Further, she prepares statistical ownership reports for various clients as well as an annual Houston Economic Overview. Lisa also creates PowerPoint market presentations, trade journal articles, and other marketing materials supporting the company's business endeavors. She works with senior management in planning the company's marketing strategy and public relations support for local and national conferences, luncheon meetings, recruitment programs, and special events.  Lisa works closely with the company's brokers to develop effective custom market research material specific to existing and potential clients.

Lisa serves on the Colliers Editorial Board, the Colliers U.S. Research Council, and is a recipient of the Colliers Researcher of the Year Award.

Lisa earned the Commercial Property Research Certification (CPRC) from Colliers University.  CPRC is the first and only accreditation for commercial real estate research professionals. It offers a professional development path to increase strategic and tactical expertise in marketing/research, knowledge of the industry and capabilities with commercial real estate tools.

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