Oil and gas business keeps Houston booming, but a more diversified economy protects the city from the ups and downs of booms and busts past.
Houston, the energy capital of the South, just may be enjoying its strongest resurgence in more than 20 years. That's just not a bunch of Texans talking tall. Construction data and economic indicators back up the fact that the Houston economy is one of the healthiest in the United States.
With its historic dependence on the oil industry and its more recent interest in the cyclical technology and financial-service businesses, the Houston market has a long history of booms and busts. The city took years to recover from a severe drop in oil prices approximately two decades ago, and the Enron scandal six years ago shook up the area's economy. But the city is doing better today than it has in years.
Houston is the fourth-largest city in the United States. The metropolitan area has 4.8 million residents and is growing at more than twice the national pace, according to the Greater Houston Partnership, an organization of businesses. “We're not as overbuilt as some of the areas and we also have the oil business, which is still going real strong,” says Bill Elliott, president of Elliott Electric Supply, Nacogdoches, Texas. While Dallas is doing well, he says Elliott Electric is “way ahead” in Houston, Austin and San Antonio.
Diversity is the key reason why Houston has grown faster than other Southern cities, says Jeff Metzler, who manages the Houston business for Crawford Electric Supply/Sonepar. “It's very balanced right now between the energy sector, medical and the Port of Houston,” he says. “Our low cost of living is an attraction for employers.”
Houston's economy is more diverse than it was two decades ago, when roughly 80 percent of all jobs were tied to energy, according to a March 14 article in The New York Times. When oil prices crashed, the city felt it big-time. The city now has a thriving port and a rapidly expanding medical district.
Still, the strength in Houston's economy is its oil and gas business, says Greg Fitzgerald, Houston area manager for Elliott Electric Supply. “It's totally different from Dallas, in the fact that we have so much oil and gas business here and that drives a lot of what's going on,” he says. “The price of oil is keeping everything afloat. There's still a lot of drilling and exploration. That keeps everything booming.”
It all adds up to some impressive sales for electrical distributors. Herm Isenstein, president, DISC Corp., Orange, Conn., forecasts that electrical distributors in the Houston area will sell approximately $2.1 billion in electrical products this year, up 8.7 percent over 2006.
Bill Elliott says his company's sales are up an average of 13 percent for the first quarter over the same period in time a year ago, and that while residential construction for Houston is still strong, it's slowing down a bit. “I think housing has slowed down some, but there's still a lot of housing out there,” he says. “We're seeing more activity in multi-family than we are in single-family. The multi-family seems to have picked up, so we're seeing more activity there. We're seeing some slowness in the market, but we're still generating a lot of business. If we can take enough business from our competitors, I don't think it's going to hurt us that badly.”
Ellliott Electric Supply's Fitzgerald is seeing growth in “all corners” of the Houston metropolitan region. “We've got 10 locations in the Houston area, and we pretty much circle the city,” he says. “Every one of our locations is busy. Everywhere you go, it doesn't matter which corner of Houston you're in, you see growth going on.”
Expansion is in the air in Houston's office market, too. The downtown office market had a banner year in 2006, with energy companies, law firms and architects leasing or expanding into space in the central business district, according to a Feb. 9 article in The Houston Chronicle. More than half of the new leases were from energy companies. The most notable move was by Chevron, which leased the 1.3 million-square-foot glass tower at 1400 Smith that housed Enron before its collapse in 2001.
Mark Jenson, president of Key Electrical Supply, Houston, says a resurgence in the downtown area — particularly the Minute Maid Park area, home to the Houston Astros baseball team — has helped regenerate some of the old warehouse district there. Trammel Crow Co., Houston, has acquired a city block in downtown Houston known as Block 126, that will be the location for a new class A office building to be named Discovery Tower. The project will be located in the heart of Houston's Entertainment District and overlook the new $93 million, 12-acre downtown park, Discovery Green, currently under construction. Gensler Architects has been hired to design the project, which will be built as a LEED-certified project under guidelines by the U.S. Green Building Council. The project is expected to break ground by the first quarter of 2008, with completion by the first quarter of 2010.
Although Houston's residential market, has slowed from last year, the news is still good, in part because land is still affordable and housing is relatively inexpensive compared to other markets. The median sale price for a single-family home in the Houston area was $149,800 last year, compared to the national median of $222,000, according to the National Association of Realtors. The median indicates half the homes sold for more and half for less. The region's 10,580 building permits year-to-date through February are only down 4 percent from February 2006. Of these, the 7,560 single-family building permits year-to-date through February are just down 8 percent from February 2006.
Key Electrical Supply's Jenson says one reason Houston's housing market is still growing is because the area has competitive residential land prices compared to some other areas of the country. “We still have an abundance of cheap residential stuff being built so it's a fairly affordable housing market, particularly for people if they are trying to get in at the entry level,” he says.
Most of Houston's residential growth is to the west side of the city, he says. “It's the west, southwest and the northwest part of the city where most of the residential expansion has been.”
Several distributors say other market sectors are seeing strong growth. Metzler of Crawford Electric Supply says the commercial market is strong. He says the drivers are the energy and medical sectors, and the population growth fueling construction of schools, churches, stores and related retail businesses
Clyde Rutland of Wholesale Electric Supply, Houston, believes this year will be another strong year of growth. He agrees that the commercial market is doing well. “There are several hospitals going up now, and several schools are being built,” he says. “That area is doing very well.”
While no new refineries are being built, the industrial business is strong because there is a lot of revamping of refineries and chemical plants, Rutland says. “That business is fairly good,” he says. “Our company expects to do between 4 percent to 5 percent more than we did last year, and we had a good year last year. It was one of the best.”
Electrical distributors are optimistic about the Houston market in the foreseeable future. Bill Elliott of Elliott Electric Supply says he would be happy with 15 percent growth this year. Rutland of Wholesale Electric is looking for growth of 4 percent to 5 percent in the commercial and industrial markets. His company does not serve the residential business.
“Good through 2008 seems to be the consensus of opinion,” says Crawford Electric Supply's Metzler.
Houston by the Numbers
2007 sales through electrical distributors. Approximately $2.1 billion in electrical products this year, an 8.7 percent increase over 2006, according to forecast data provided by DISC Corp., Orange, Conn., for www.ewhotspots.com.
Building permits: The 10-county Houston-Sugar Land-Baytown metropolitan statistical area (MSA) had 10,580 building permits (single-family and multi-family) year-to-date through February 2007. That's down 4 percent from February 2006.
Major construction projects underway: Trammell-Crow Co.'s Houston office is developing a 13-story, 330,000-square-foot Energy Center, Phase 1, in West Houston.