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Houston, You Have A Huge Problem: One-Sixth Of US Office Space Under Construction Is In This Texas City
Nearly two months ago, in "Houston, You Have A Problem" - Texas Is Headed For A Recession Due To Oil Crash" we warned that, just as the title explained, the city that has been the biggest beneficiary of the US shale boom will, logically, be the biggest victim now that the shale boom turns to bust. The post had many numbers and charts, as well as lots of words, so it is understandable if if went right over the heads of many.
Then, one month ago, we followed up with "The Next Victim Of Crashing Oil Prices: Housing", which also had a bunch of charts, numbers and words but had the following observation:
... we look at the impact of plunging crude on non-residential construction and specifically physical structures, which is where roughly 90% of energy capex is. Spending there tracked an annualized rate of $140bn in the first three quarters of 2014, a sum that accounts for a whopping 30% of total non-residential private fixed investment in structures, or about a 1% of GDP.
...
Texas accounts for a significant share of US oil production. Using the early 1980s as a guide when oil prices collapsed, housing starts in Texas declined more than 75% over a five-year period. This is probably the worst-case for today given that starts were at much higher levels then and the regional economy was more dependent on energy production.
The point was simple: while everyone has been focusing - and if they haven't, they should be, right BLS? - on the adverse impact to oil-service (only) jobs from the shale bust, it was only a matter of time before the fallout spread to that all important for the US "recovery" segment of the economy: housing. Then again, judging by the Census Department's being just as much on top of "seasonally-adjusted" housing data as the BLS, it appears both of these warnings were ignored.
However, now that the WSJ has joined the fray, the time has come for US data reporting to finally catch up to reality.
This is what the WSJ had to say about the imminent collapse in not only the Texas housing industry, but soon - everywhere else.
The jagged skyline of this oil-rich city is poised to be the latest victim of falling crude prices. As the energy sector boomed in recent years, developers flocked to Houston, so much so that one-sixth of all the office space under construction in the entire U.S. is in the metropolitan area of the Texas city.
Many of those building are bracing for a sting in the short-term. It could be even more painful if oil prices stay low.
What happens next:
Demand for office space is “going to basically stop,” said Walter Page, director of office research at property data firm CoStar Group Inc. “It hurts a lot more when you have a lot of construction.”
By the end of 2014, construction had started on about 80 buildings with about 18 million square feet of office space in the greater Houston area, according to CoStar. Many of the buildings were planned or started when oil was above $100 a barrel. On Tuesday, oil futures traded around $50. The amount under construction is equal to Kansas City, Mo.’s entire downtown office market and is 16% of all U.S. office development under way.
And as a reminder, every high-paying oil service jobs acounts for up to 4 downstream just as well-paying jobs. Case in point:
The rush of building has created thousands of jobs—not only at building sites, but also at window manufacturers, concrete companies and restaurants that feed the workers.
But just as the wave of office-space supply approaches, energy companies, including Halliburton Co. , Baker Hughes Inc., Weatherford International and BP PLC, have collectively announced that more than 23,000 jobs would be cut, with many of them expected to be in Houston.
Fewer workers, of course, means less need for office space. Employers have rushed to sublease space in recent months, with 5.2 million square feet of space on the market as of last month, up about 1 million square feet from mid-2014, according to brokerage firm Savills Studley. BP, for example, is trying to sublet 240,000 square feet of space at its campus in the Westlake neighborhood, which represents about 11% of BP’s space at the campus, according to CoStar. A BP spokesman said the company is “consolidating” its footprint.
Some humor from the WSJ: "Developers are often victims of “herding and groupthink,” said Rachel Weber, an urban planning professor at the University of Illinois at Chicago who is writing a book about office overdevelopment in Chicago. “There is a sense that if everybody is moving in the same direction and acting the same way, that you do better to mimic that kind of behavior.”
Actually, make that economists, analysts and CFOs too. Oh, and workers for the US Department of Truth, who are in no danger of losing their jobs. They will be very busy for months and years to come to figure out a way to misremember and misrepresent the collapse in the oil industry that is about to take all shale states by storm.
To be sure, there is still much hope and faith: "Mr. Mair said he believes in the city’s economic strength in the mid- and long-term, giving him confidence to finish work on the second tower. “I’m not afraid of ’16 and ’17,” he said."
Coupled with a money-printing Fed, the strategy of "hopium" has worked well in the past 6 years. This time, however, at least all bets are off. And while the distant future may be rosy, Houston - and everyone else - has to get through the present. Which, as the following chart shows without any ambiguity, is why Houston suddenly has a huge problem.
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Everthing is bigger in Texas.
Dont worry, Houston can fill them up with Vermont Teddy bears. Hopefuly China will place a big order for them too and it'll help prop up the Baltic Dry Index. This is the new economy
There are dozens major 30-50 story office towers going up in and around Houston right now. It's nuts.
Plus the new multi billion $ Exxon world headquarters
http://www.forbes.com/sites/christopherhelman/2012/12/04/a-birds-eye-vie...
But what if they get a "Grilled Cheese Truck".
I'll ask this question again. No-one ever seems to answer in the affirmative.
Does anything good come out of a high-rise office building?
Flying banksters?
Everyone likes to see a high flying banker put to the test.
I live in the DFW suburbs. It is nothing but empty office buildings as far as the eye can see. This is a really big problem in Richardson and Plano. It saddens me to no end to see such waste. Screw banksters everywhere!!
But they said, "It's contained."
Right ?
And we have a winnner!!
Know your nemy
AD
"Gourmet Grilled Cheese Truck"
Sorry man, I got excited.
Grilled cheese truck gets shot up by the "taco wagon".
Once they're abandoned, they'll make awesome places for the local kids to skate. At least that's what happened in the 80's.
https://www.google.com/images?hl=en&q=abandoned+bangkok+skyscraper
I live in Galveston, and in Houston the state bird is the sky crane.
If we believed in free markets, this would not be a big deal. Some go bust, overcapacity is worked off. But since we we don't, so let's just get straight to talking about bail-outs.
Always remember the most important question to ask yourself: Is there any way we could get the government more involved in this?
"Is there any way we could get the government more involved in this?"
Yes of course...I propose a new department called the Federal Building Administration the "FBA".
The Federal Building Administration, generally known as "FBA", will provide mortgage insurance on loans made by FBA-approved lenders throughout the United States and its territories. FBA will insure all types of loans on unnecessary high rise buildings and other commercial property including solar generating stations, wind farms and shopping malls. It will be the largest insurer of commercial mortgages in the world, with the highest number of government employees and the largest most wasteful budget of any government agency.
Can call it Maiden Lane IV.
Or Homeland Security Security (HSS). The agency that does the job of Homeland Security since they don't want to but get paid incredibly well anyway.
ENFORCE THE BORDER!!!
Do they know something we don't?
House of Exxon can't possibly need that much space?
No, but part of it could be for a future fema camp?
From the perspective of an albertan, everything is go big or go home in the US, and Texas epitomizes that.
Calgary is set for a short term shellacking, so Texas is probably in for one an order of magnitude bigger. Looking at the graphs of supply and demand SRS rocco did, the difference is hardly enough for such a plummeting in oil prices ( we know organic market reasons aren't behind this anyway ).
Maybe we'll be lucky and instead of someone like syria or ina being attacked, saudi arabia, qatar, or an unnamed mediterranean country will, causing prices to go buck wild again.
If you think Calgary is in for a "short-term" shellacking you have a poor understanding of what cost of production in the oil sands is and what $50 oil means for those projects. It will be a long time before those projects are economic again.
Shale gas bust might soon turn out to be the ebola of finance.
LOL, join the rest of the country in vacant commecial space.
Perhaps a bank, education or medical enterprise can open a new office there.
These businesses seem to be expanding, whereas production of anything is so yesterday in the US of A.
At least here the banks are merely taking over all of the existing buildings. Meanwhile, education and healthcare are keeping the cranes busy.
The school district here wants to demolish all the elementary, middle school, and the junior high building and go into 25-year debt to build new ones. The Edward Jones guy who sits on the board thinks refunding into 40's would be a brilliant move.
Makes me want to move.
CA school district, borrow $105mil and pay $1bil
http://voiceofsandiego.org/2012/08/06/where-borrowing-105-million-will-cost-1-billion-poway-schools/
But they said, "Don't worry; Chinese investors will buy it all up."
Hey don't forget HOMELAND SECURITY AND GOVERNMENT OFFICES IN GENERAL.................
four things growing in USA
1. obamacare/medical services
2. financial/stock market/hedge fund services
3. education/university centered
4. government/militarization of domestic security
yeah, don't see one producer here of anything.
Same as it was in the early 90s. Over capacity déjà vu.
Growing like a weed here in Austin. Am not loving it.
Why do we still see the "Keep Austin Weird" bumper stickers?
So when you're stuck in that wonderful traffic you'll know you're still in Austin, not Houston.
People whose children moved here from Houston put them on the Lexus their parents loaned them. So they can fit in with the "vibe"
Austin stinks now -- too overcrowded, congested, polluted and crime ridden. They let the developers go wild and every farm patch for miles has been torn up. I read their police chief had to put together a Speical Task Force to deal with the soaring violent crime there.
Sad. I loved Austin in the old days before about 1995. Luckily I moved out before its demise.
1. Los Angeles
2. Honolulu
3. San Franscisco
4. Austin
5. New York
6. Bridgeport, Conn.
7. San Jose
8. Seattle
9. Washington, D.C.
10. Boston
http://newsfeed.time.com/2013/05/07/top-10-u-s-cities-with-the-worst-tra...
Yep
Looking out at the Houston skyscrapers now and miss the Old Austin. I was there from 1982-2007. Loved the 80's in Austin, 6th street, the old Armadillo, Stevie Ray and Steamboat. Tooling around at night on my cycle with a six pack and a coed on the back seat. Thems were the days
Moved back to Houston in 2007. Dying a slow death in the machine they call life
Art Acevedo added a police officer for every 350 people moving here. Texas loves a police state. I wouldn't say there is soaring violent crime here though.
A lack of water... yes.
Somebody is building office space in Chicago?
3 Big boys going up right now and 50% leased already. Main tenants are international law firms and investment banks. The tech companies seem to prefer the older loft buildings instead of fancy new glass towers. I wonder what they will do with the giant CBOT floors when the pits close.
Just wait till the FED raises rates, that outta be fun.
lol, that always makes me chuckle.
pods
Do you know what ES is?
"Just wait till the FED raises rates."
Kind of like waiting for big foot to show up at the NY stock exchange.
There's an IPO out there for finding Big Foot, might not be too much to expect a showing at the NYSE?
Developers used to build what made sense. Now they build just because interest rates are low. USA needs to get back to capitalism and free markets, let these developers and their friends money fail
Exactly. Thank you Bernanke. They really need to reevaluate what it takes to get a ph.d. because the people at the fed like Bernanke have convinced me they are idiots.
and who down voted SethDealer's comment? Bernanke is that you, dont' be shy? Just tell everyone that it's you and that you really didn't have a clue what you were doing with the 85 billion a month. You were just trying hard to be right.
Could be Toyota moving US headquarters from Torrance, California to Dallas.
http://www.latimes.com/business/autos/la-fi-toyota-move-20140429-story.html#page=1
US Honda is also based in Torrance, but may move to Texas too one day...since Toyota and Honda cross-pollinate their corporate workforce in the past.
On a larger scale many companies are moving to Texas basically for a few reasons:
1. Centrally located which is good for working across the USA (travel, hours of day, distances).
2. Texas is becoming the central distribution hub for all things, so is replacing Chicago in many ways.
3. Has Gulf access and the new Panama pipeline expansion will move more shipping to Texas.
(note the recent 29 port West Coast union strike)
4. Better tax policies and rates. And strong pro-business/pro-corporate politics.
5. Very similar access to Mexico and South America as California.
6. Better warm weather (but very humid)...does not snow nearly as much as Chicago.
#6 - FARRRR less humid here in West Austin or San Anton than in Houston. Houston is a fucking swamp.
The humidity difference just a few miles east/west of I35 in Austin is amazing. Even the 1.5 million bats hang out under Congress Bridge 2 miles west of I35 where it's less humid, but they fly east down the river each night to the humid as hell east side to munch mosquitos. This just goes to prove that your average bat is smarter than your average houstonite.
uh, those stupid bats live under a bridge!! I live in a 4000 square foot home with 0 down. I think I am smarter
You have to excuse Houston as it is the 4th largest seaport in the US. Sometimes in the winter we get a nasty northwest wind from the Austin area in very liberal quantities that blows all the humidity out to sea.
Maybe you should enjoy Lake Travis while it still exists....
I live in Dallas. Texas is Big Biz Friendly at the expense of the stupid workers. Lower Standards of living because, well, people are too stupid to realize their State Govt is stealing from them. Deregulated Energy, Insurance, Tort Reform. What did we get? We are the breadbasket of oil and NG yet we have the highest electric rates in country. Highest costs of utility service - last mile cable, tele, etal get theirs returns for campaigns. Highest Insurance in the Nation. Think about that for a minute. YOu have car wreck the insurance industry in TX can now put "used parts" on your car! Tort Reform was major wealth transfer from injured to companies.
actually Texas has the lowest electricity rates in the usa. Texans pay avg .09 cents kwh, california is .15.. most of Northeast is paying .13
I live in a small(er) home in ATX, very energy efficient, and used 21,149 KWh last year. I was billed $2476 for that time period. More like 11.7 cents a KWh. Base is low, but then they add on 5 other "additional" charges like "Customer Charge" "Regulatory Charges" "Community Benefit Charges" and Power Supply Adjustement" "Power Supply adjustment" on my last bill was .04 cents per hour.
this is because you are in the City of Austin unregulated grid, same with San Antonio. The city of Austin subsidizes solar and it bill you for the losses... The rest of the state is unregulated and prices are much cheaper. www.powertochoose.org type in a zip code outside of the Austin or San Antonio area
Rick Perry also gave Toyota $40MM from the "Texas Enterprise Fund" which is taxpayer money to assist them.
Can someone tell me what ES means????
It could mean a lot of things according to this (like Empty Scrotum), but let's try Energy Sector for a start.
Reading things in context helps too.
What? SPX Futures maybe?
So which country is building ghost cities now?
Houston as a ghost city would be a huge improvement.
Compared to the cesspool you live in?
Tons of new office space being built/renovated in Pittsburgh. They think this shale gas boom will last forever.
They think. Huh. Think. That's a funny word to use to describe people who see money where there is only debt.
One day, Detroit will be on ths list.
This is what happens when an Oligarchy plans urban growth based on speculative capitalism.
Nothing has any sustained meaning, its all short term market doped rip offs. The financialized FIRE economy of go-go Reaganomics. Making living space into urbanised hell based on RE rentier sheeple bashing.
American capitalism is NOW the mega problem of our age.
You may have noticed that the Indian economy is moving to measure GDP in terms of "Market value added" (MVA) model, the very basis of short term capitalism; where MVA and EVA made the days of Gordon Gekko type asset stripping; not to make the economy more competitive but to make the market asset strip rip-off more spectacular. Moving away for the more prudent "factor cost based" model. Next step : Outsource the stripped and ripped dying beast (Bengladesh slave labour for India). Oh those halcyon years!
Well done Mr Modi, you are setting up the Indian economy to steroid-hyping it into a neo-Reaganomics type, Oligarchy run, ripped-off mastodon full of warts and bubble farts. "May the masses crumble, WE are on a rumble!" Is that the ONLY way to solve the PLETHORA of government shenanigans and red tape...?
Ha! 7.5% GDP growths here we come for the next decade ! The Oligarchy markets will LOVE THAT !
Austin / Houston / Dallas Ft Worth - new building is 30 million sq ft - manhattan is 400 million +/- existing - seems like a lot to absorb
Tx buildings were see thru from 85' for ten years in many cases
Have you been to either?
Dieversity
Houston also has the largest medical center in the world, which will come in handy as the hungry mobs start shooting and maiming each other for scraps. Houston did make a point of diversifying our industries after the last oil market crash. We've also got NASA... wait...
We dont need NASA, our Russian buddies fly our astronauts....wait
http://www.space.com/20897-nasa-russia-astronaut-launches-2017.html
That med center is huge! I helped a relative go there for some cancer Rx at MD Anderson. Very clean, efficient, pretty friendly and plenty of support stuff in the center for friends/relatives of sick people -- like food places, etc. Looks like they have some of the most modern equipment too. Hope I don't need them but if I do, I know where to go.
I read they also have two med schools there: Baylor and a UT branch.
it is a nice med center but they kill you on parking prices, parking garage is profit center
I did a tour with the Greater Houston Partnership (our Economic Development Council, World Trade Center, and Chamber of Commerce) of the Texas Medical Center, and one of their trivia questions were: "what do you think our biggest source of revenue is here at the TMC?" Answer: Parking.
My sister was sick and laid up there for three weeks and my parking costs were over $750.
How about a 3 truck taco stand business that's losing money doing an IPO so all the Wall Street fund managers can throw 100s of millions at the owners?
Do your IPOs now before the sea of other peoples money dries up!
Well, Houston is a "space" center, right? Just a little reinterpretation of terms.
For some reason Commercial REITS are still doing very well...
Now what are we gonna do with all these Steelcase desks? Those fucks at Herman Miller highballed the bid on purpose!
sell those Aieron chairs to the Wisconsin dairy farmers as a swivel milking stool? Your fired!
I thought oil and gas could never go down again. What with the Chinese market appearing to be growing rapidly. Houston appeared to be on the way to becoming the center of the universe due to oil and gas. OPEC was supposed to be running out of crude and losing influence around the world. Saudi Arabia was supposed to be our friend. Iraq was supposed to be under our control. South America was succumbing to corrupt leadership. .... I guess my nightmares of the 1970's are just going to start up again. Sleeping in line at 4:00 a.m. waiting for the gas station to open so that I can buy my 10 gallons of gas. At least Houston has NASA, oh wait.
"And as a reminder, every high-paying oil service jobs acounts for up to 4 downstream just as well-paying jobs"
Ah... But that's just what you see floating. Underneath those (4) 'high-paying' jobs comes how many 'Bartenders', 'Leisure & Hospitality', 'Health-Care' and other 'Service' related jobs...?
Let's try to look at this situation as a future opportunity, cause in the late 80's we made a killing on crashing housing prices.
Exactly, most of the carpetbaggers go away and developed land will be had at rock bottom prices. I fail to see the problem here.
Agreed! Still stuck with the illegal (texting-driving) immigrants though. Yankee go home and I can go land Lord - bows necessitated.
Kind of off the subject.
I live in a very rural area. The "big" town 20 miles away with a population of 3600 has in the past year added built 3 small banks/ credit unions giving the town NINE BANKS. All the banks are within 2 miles of each other with the 3 newly constructed banks all on the same street all within 2 blocks. Funny thing is nobody in the area has a good enough job to actually save anything.
You boys ever watch "Cocaine Cowboys"? Said at one point there were at least a dozen high rise construction cranes visible on the Miami skyline.
It was dope money, getting laundered via real-estate.
So back to now and Houston and construction. Is this just Cartel monies, getting a rinse cycle?
It's not just the real estate market.
The asset bubble machine washes all kinds of laundry for the Bush cartel.
Banks too big to fail but shale oil who produce oil and account for high paying jobs too small to bail. Oh yeah, there are no labor unions like the UAW that need to be bailed out in the shale oil business.
NO ONE SHOULD EVER GET BAILED OUT.
Exxon mobile is moving their global HQ to the woodlands. That's taking from Irving and Virginia. It's a huge space.
This article indicates the level of irresponsibility that the planners
are engaged in simply to jack up the failing Global economic bubble.
China's growth in empty residential and commercial space dwarfs
Houston Texas and New York City combined. What is obvious is that
this real estate is going to remain empty while monies could have been allocated to actually stimulate markets where markets can use the allocation productively. Blowing bubbles in Texas is not going to help middle America, Uncle Sam. Moreover, I fail to see how this rising tide is going to float all boats that are already half under water already.
This overbuilding is getting to be too silly.
I'm pretty sure that title is a little deceptive
USA real estate market is mostly all smoke and mirrors. ACTUAL DEMAND is low as most Americanos can't afford a pot to piss in much less a housing loan. Look at NYC - nearly all foreign investors buying. Same in most USA cities. And a lot of offices going up not only in Houston but in other big cities are lying empty.
IF YOU OWN REAL ESTATE AND CAN SELL,SELL NOW. THIS MARKET LEVEL IS NOT GOING TO LAST. The next downturn, I believe, is going to last for a very, very, VERY long time.