Houston Economy Shows Early Signs of Slowdown

Ed Page, principal with Page Partners, and Stewart Robinson, senior director of Hines, said leasing velocity is good on the retail and office sides, but both sectors are off from their peak of 18 months to two years ago. Michael Boyd, principal with Boyd Commercial LLC, echoed the same trend on the industrial side.

Many panelists and speakers agreed the current real estate situation was the result of capital, or lack of it. Much of the capital is still sitting and waiting on the sidelines and isn't going anywhere anytime soon.

"There are three issues in this market," said Matt Khourie, president of southeast operations for Trammell Crow Co. "Capital, capital and capital. Capital to buy the land, capital to finance the vertical improvement, capital to get equity capital and capital to buy the finished product. There's a dearth in all those areas right now."

But Khourie and others indicated that the capital blockade might not be such a bad thing. "The credit crisis and rising construction costs acted as a good brake on the building," said Chip Clarke, president of Gulf Coast and Mountain Regions for Transwestern, adding the trend means the specter of oversupply is less likely to happen.

Oversupply is also less likely to happen in the future, especially with debt financing still so tight. "If you don't have your construction loan in place for new development, unless you have a lot of equity, you probably won't get things built," said Michael Wyatt, co-founder and managing director of CORE Real Estate.

The RealShare experts shared advice on how to take advantage of the current situation. Bill McDade, chairman with McDade, Smith, Gould, Johnston, Mason + Co., suggested professionals stay clear of debt and follow the business section for potential opportunities. "Talk to people," he added. "I tell my people it's a great time to retrench and learn and get better prepared to serve clients when things turn around."

Tom Melody, vice chairman with CBRE Melody, admitted equity is sitting on the sidelines, but added purse strings might be opened for special projects. He said substantial equity could be directed toward senior and student housing, medical office and other projects in the coming months. "Most of that will be opportunistic, though," he added.

About 375 RealShare participants gathered in the Westin Galleria Houston at 5060 W. Alabama St. to learn the latest news and gleaned insight for a variety of hot topics. This year's keynote speakers, both from local companies, focused on two economic drivers: the Port of Houston and the energy industry--and their impact on the area's real estate health. The RealShare Conference Series is part of Real Estate Media, a division of Incisive Media.

Curtis Spencer, president with IMS Worldwide Inc., pointed out the port is continuing to maintain a 4% to 5% growth rate in the face of its competitors which aren't doing as well. But trends expected to impact the port's growth will include the opening of the Panama Canal in 2014 to cargo ships, meaning these ships will get into new markets like Houston.

Additionally, security and labor challenges in logistics overall means the average inventory hold in the US will increase from four weeks to five weeks. "It means I need more room to put the stuff and this is where Houston comes in," Spencer explained.

From the energy perspective, Dan Pickering, co-president with Tudor, Pickering, Holt & Co., pointed out various trends to watch. While he believed that the energy boom in Houston would likely last another two or three years, he cautioned listeners to keep an eye on the global economy, oil prices and energy stock prices for any warning signs. "Theoretically, the stock market is an efficient animal," he said. "If prices are tanking, we probably need to be a little more nervous than if they're on the rise."