Houston Real Estate: Houston Building Permits On The Rise

The number of building permits issued by the city of Houston is creeping back to its pre-recession high.

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The city issued $5.7 billion in permits over the past 12 months, according to data collected by the city’s Department of Public Woks & Engineering, Planning and Development Services. That’s a 22.9 percent increase over the $4.6 billion issued during the same period a year earlier. Last month, the increase was 23 percent.

With housing demand in overdrive, builders have been ramping up development amid solid economic growth. Medical projects, schools and other commercial developments have been on the rise, too.

Residential permits grew by 32.3 percent and non-residential permits were up 17.9 percent, according to the Greater Houston Partnership.

The peak was in 2008 when overall permit activity reached $6 billion for the 12-month period ending in October. The low point was in September 2010 when values were $3.1 billion.

Houston Real Estate News: Hines Plans Large Gated Community Inside the Loop

Hines said Tuesday it recently acquired a 46-acre property inside the 610 Loop for a new gated residential development.

Plans for the project — Somerset Green at 6900 Old Katy Road — include about 500 three- and four-story single-family townhomes on small lots, as well as community spaces, such as parks and swimming pools.

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Infrastructure development is expected to start early next year, followed by the first phase of home construction beginning late next year. Coventry Homes, Pelican Builders and Toll Brothers will be building in the first phase, and Preston Wood & Associates is the land planner for the community.

Hines’ portfolio of master-planned communities includes First Colony in Sugar Land, as well as communities in Irving, Texas; St. Augustine, Fla.; Aspen, Colo.; Moscow; and Prague. The firm also has a variety of projects in the works around the Houston area.

A Hines executive recently discussed plans for many of those projects. The company plans to break ground on its 47-story downtown skyscraper at 609 Main in the first quarter of next year, and construction is likely to start on its inner-Loop 17-story office structure at 2229 San Felipe before the end of the year.

On the multifamily front, Hines is working on a 33-story Market Square development with 289 units at 327,000 square feet, as well as a 25-story project in the Museum District with 250 units and 301,000 square feet.


Houston Commercial Real Estate Outlook Positive

National consumer confidence is rising in spite of the federal government’s actions, according to Dr. Harold Hunt, a research economist with Texas A&M University’s Real Estate Center. Hunt recently presented an overview on the current economic outlook for real estate decision makers to the Commercial Real Estate Research Forum at HAR.

Opening the presentation with a slide titled “(Most of) the Federal Government is Still Broken,” noting “The NSA (National Security Agency) as the only part of government that actually listens,” Hunt then provided a multitude of statistics and surveys to support his economic outlook.

Focusing on three areas of the economy that could affect commercial real estate, Hunt asked his No.1 question: Is lingering uncertainty over ‘Obamacare’ holding back the economy?

Saying no one knows for certain how health care premiums will be affected, Hunt then cited several major health care providers as projecting consumer premium increases ranging from 40% to 116%. The major providers included United Healthcare, Aetna and Blue Cross & Blue Shield.

Regarding new hiring, however, he cited several studies refuting the belief that uncertainty over health care will adversely affect new hiring. A recent survey by the National Federation of Independent Business reported that a majority of small businesses believe now is a good time to expand and plan on hiring people in the next three months. Another group reported that 32% of companies surveyed said they would be hiring for more new jobs within the next six months; 26% reported hiring for fewer jobs. He also reported that some industries were cutting back workers’ hours to avoid the health care issue but others were attributing cutbacks to lack of demand.

Hunt detailed recent statistics which show consumers are spending more money while holding down their household personal debt and keeping personal savings solid. On the corporate front, banks are reporting stronger loan demand from both large and small firms.

The No. 2 economic harbinger could be the effect on cap rates: Will they increase as much as projected interest rates? Hunt described cap rates as “just a ratio” comparing net operating income divided by purchase price, but said major factors affecting cap rates include the cost of capital, equity’s required rate of return, and certainty and direction of annual property income. He explained that cap rates are perceived to align with interest rates but the reality is that rent and/or income cannot always be increased.

The No. 3 issue: With the slowing of oil and gas employment, is the U.S. economy becoming a drag on Texas and Houston? Hunt said the federal government is hurting some industries such as manufacturing by holding back jobs due to regulatory and tax laws. However, after analyzing each industry’s growth rate derived from Texas Workforce Commission numbers, Hunt showed the Houston Metropolitan Statistical Area (MSA) outperforming the state and nation in the majority of industry categories.

Houston experienced employment growth in all industry categories but one during the past 12 months, according to the Texas Workforce Commission. The Construction industry reported the largest gain with a 7.4% rate increase followed by the Leisure and Hospitality industry at 5.7% and the Mining and Logging industry at 5.5%. The category Other Services recorded the only negative for Houston at -1.5%. Other Services includes those employed in the repair industries, such as car repair, etc., which reflects consumers buying new items rather than repairing older items, Hunt explained.

Concerning the area’s overall job growth, the Houston MSA posted a 3.6% job growth rate for the past 12 months, ranking sixth among Texas MSAs. At the top of the list is Midland at 6.2% followed by Odessa at 5.2%, Fort Worth at 3.9%, and Corpus Christi and Dallas at 3.7%.

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Ranking the Texas MSAs Job Growth
Past 12 Months Ending July 2013

Source: Texas Workforce Commission

Hunt’s overall conclusions for the nation are:

  • Interest rates are likely to increase as the Fed talks more about slowing their bond purchasing (but local cap rates may not be greatly affected).
  • The national economy keeps improving, barring any unexpected international economic downturn.
  • More inactivity from federal government stifles any hope of a robust economic recovery by the American public.
  • Look for slow, positive job growth in 2013-2014.
  • Unemployment should continue trending down.
  • Despite government inaction, business decisions do seem to be occurring.

With regard to Texas and Houston, Hunt’s conclusions are:

  • The sluggish U.S. economy doesn’t seem to be having a marked effect on our state and local economy.
  • Besides manufacturing, other job sectors do seem to be stepping in for slower oil and gas employment.
  • As a result, all areas of commercial real estate should continue to perform well over the next year.


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