By Selina Khorana
In late January, PDR joined 550 industry executives to understand the impact of Oil and Gas on Houston’s Real Estate market at Bisnow’s latest event. Panel economists were cautious and realistic, voicing concerns over slower growth in China, full-speed production by OPEC, stubbornly resilient U.S. production, and record high crude inventories, both in the U.S. and abroad. The panelists (Greater Houston Partnership, Institute for Regional Forecasting, Energy Architecture, and UT Center for Energy Economics) painted a picture of a cloudy 18 months ahead, and all agreed to disagree on more precise timing of an upturn, and just how far crude prices might continue to fall and eventually rise.
The resounding good news, however, was Houston’s innate resiliency. Since 1982, this will be Houston’s fifth round through a significant drilling bust, and while each was painful, none were lethal. This cycle brings a silver lining for Houston’s downstream sector. With the severe drop in crude prices, the Ship Channel is experiencing a major boom in building downstream petrochemical, refining and liquefied natural gas (LNG) plants. Primarily driven by low natural gas prices, more than $50 billion in oil-industry construction is underway in east Houston, bringing an influx of skilled construction workers and a renewed focus and optimism.
The second set of panelists (Cushman & Wakefield, Midway Companies, JLL, and Colvill Office Properties) highlighted Houston’s current real estate market with varying degrees of optimism, and spoke of building for the future.
“Jerry Hines is working on the side with his firm, and working with PDR and a few other key firms, to understand what the building of 2025 looks like,” said Cushman & Wakefield executive vice chairman Tim Relyea. “Because we don’t have it today. Our inventory is still older than you would think. Hines is doing the next round of cutting edge buildings … we’re looking at a lot of different things, Jon Pickard is on the panel with us, and we’re trying to really push what has not happened and what should happen in the next phase of buildings.”
While it may be instinctual to retreat and hunker down, opportunistic firms will see 2017 as a planning and strategy year. An upswing is inevitable, and by laying the groundwork now, strong firms will be poised for success in 2018 when this passes. PDR believes there are a number of significant opportunities worth capitalizing on:
Reality: Game-changing acquisitions and partnerships will unlock new growth
Opportunity: Even if crude prices suddenly surge, hiring won’t immediately follow suit. The first focus will be paying down significant debt, followed by renewed investment in exploration and production. Given the limited M&A activity in 2015, there is an approaching wave of consolidation among midstream players, and the complexity of organizing real estate assets is too often overlooked.
Reality: Five to ten million square feet of full-floor Class A sublease space are currently available
Opportunity: While Oil and Gas firms may be reducing headcount and RE demands, numerous Houston firms are looking for liquid flex space. Additionally, the co-working wave is gaining traction in Houston as a blended incubator space, with new locations and business models opening regularly.
Reality: The existing stock of Class B and some Class A buildings are approaching 30 years of age
Opportunity: The right renovations will allow these assets to meet current standards for both efficiency and tenant comfort: updated meeting facilities, accessible green space, slab to slab heights allowing for more daylight, better technology platforms, and shared amenities.
Reality: There is a substantial inventory of Class A space available in Houston
Opportunity: Houston may become a stronger candidate for corporate relocations and expansions, presenting the right combination of site criteria and availability across a diverse range of industry sectors.
PDR is a consulting, design, and architecture firm with global project capabilities, but at our core, we are a group of strategic thinkers doing work together from one studio in Houston, Texas. This is our home, and we are committed to seeing our city through this downturn. Whether you are a workplace supplier or buyer, 2017 will be a challenging year. As you look to develop a competitive advantage, PDR would love to talk about how we can help you strategize, design and implement your Houston opportunity.
Design strategist passionate about integrating design thinking principles with business acumen and consumer insights, at an organization that is committed to driving innovative user experiences.