Houston's Ride

The chamber of commerce spirit can be counted on to get the provincial juices flowing—where does my city (metro, town) fit in the pecking order of investment choice? Locals look at the year-end surveys to see where their market ranks. And darn if it looks pretty much the same every year. One way or another the vast amount of capital flows head into the familiar 24-hour cities, which I identified nearly 20 years ago in Emerging Trends. The order may change from year to year, but institutional capital wants to be in New York, Washington, DC and San Francisco first and foremost. And Los Angeles, Boston, and Seattle will always be perennial favorites too. These are the places where the nation’s economic engines concentrate and most commerce gets done. It is where tenant demand is strongest, driving NOI growth and real estate values. In downturns, these markets tend to hold value better and recover more quickly. That’s been true again in the most recent cycle, and these places are where the smart money invests to buy and own. They are the real estate blue chips.

Now, notably Houston has moved into the top ranks over the past few years, propelled by the nation’s renewed energy dominance. This market has always lived off oil and gas, despite its recent diversification—increasingly important Gulf port, medical center, and expanding universities. As long as the energy business fires Houston will do well, especially for developers who can tap into this hot growth center where zoning laws do not matter or really exist. While Atlanta, Phoenix, and even Dallas deal with chronic suburban agglomeration oversupply, Houston has managed for now to attract enough new demand to keep up with prodigious new supply. And its ratings recognize the accomplishment