By Anna Driver and Ilaina Jonas, Reuters
HOUSTON/NEW YORK — With Texas one of the few bright spots in the U.S. economy, the skyline of swaggering Houston is where the action is as builders and global oil companies, from Phillips 66 to Exxon Mobil Corp., look past previous busts and spend billions on gleaming new buildings. The U.S. shale oil and gas revolution — which has already changed industries from railroads to pipelines and refineries — is helping drive the voracious appetite for office space needed for the expanding workforce in the world’s energy capital. Demand is so hot that Houston is one of the few places where banks — including Wells Fargo & Co, which is seen as one of the more conservative big banks — will loan money for a new building without demanding developers first have a tenant. “Houston is booming and bar none the strongest market in the United States of America,” said Joseph Sitt, chief executive of Thor Equities, which has two projects underway in Houston. There are some 56 office buildings totaling at least 11 million square feet under construction in and around Houston, according to real estate services firm CBRE Group Inc. That is equivalent to 190 football fields.
In the forested suburbs, Exxon has what it calls “one of the largest commercial construction projects underway in North America.” The nearly 400-acre campus with 20 buildings will have enough room for 10,000 employees. With crude now above US$100 a barrel, money is flowing freely. And while the shale oil and gas transformation means North America may be energy independent by the end of this decade, economists are wary when people say this boom will be different. They counsel caution. “The Texas oil and gas industry is not known for long periods of stability,” Karr Ingham, economist for the Texas Alliance of Energy Producers. “Nobody wants what happened (in past busts) to happen again.” To be sure, the amount of space being built is still only a fraction of the 88.9 million square feet developers constructed in Houston from 1980 through 1986, a flurry that more than doubled the city’s office market, according to real estate research firm Reis Inc. The Texas economy grew 4.8 percent last year, the fastest pace among the big U.S. states. New workers are pouring into Houston, which needs new offices for the 100,000 jobs it added last year. Houston is on track to add another 80,000 this year. But over-exuberance about real estate and oil have afflicted Houston before. In the early 1980s developers built a 71-story green glass tower with a footprint shaped like a dollar sign.
It took nearly two decades to recover from Houston’s big crash in the 1980s, which was brought on by a collapse in oil prices. Vacancy rates soared to near 30 percent in 1983 from 9.8 percent two years prior, according to Reis.
The current building cycle is in large part propelled by burgeoning domestic production of oil and natural gas unlocked from shale formations through hydraulic fracturing and horizontal drilling. “If you are investing in Houston, you’re a believer in the energy sector long term, which we are,” said Russell Cooper, managing director of capital transactions at Shorenstein Properties LLC in San Francisco.