Houston strong: CRE one year after Hurricane Harvey
The main takeaway from Hurricane Harvey is the importance of being prepared. Houston has shown it is serious about flood mitigation and has already started improving its infrastructure.
The greater Houston area covers nearly 10,000 square miles and is home to more than 6.5 million residents. It is a global city that has inhabitants from every corner of the world. Its citizens’ storied history of philanthropy has led to the creation of, among other things, the "Energy Capital of the World," largest medical center in the world and a globally renowned arts hub. Beyond the metrics and data, Houston is a city of resilient, selfless and thoughtful people. No event in history showed the humane and supportive side of Houston like Hurricane Harvey did.
Hurricane Harvey made landfall near Port Aransas, Texas, on August 25 at 10:00 a.m. as a Category 4 hurricane. This once-in-a-millennium storm stalled over Houston for four long days, dropping more than 16 trillion gallons of water over a 50,000 square mile area and leaving nearly one-third of Houston underwater. To put this into perspective, that is enough water to fill up nearby Lake Conroe 116 times, according to Harris County Flood Control District. In addition to setting the record for average rainfall, Hurricane Harvey was the second costliest storm in American history, flooding more than 150,000 homes and 300,000 cars, totaling over $125 billion in damages.
The Harris County Flood Control District explains that there are three factors of determining how historic a certain rainfall event is. These factors are duration, amount and spatial coverage of rainfall. There are 18 total combinations of records, and Hurricane Harvey exceeded every previous record in American history except for just one. Simply put, Harvey was a storm that few will ever experience again for generations.
The immense amount of damage Hurricane Harvey dealt to Houston left a permanent scar as thousands of structures across Houston were flooded and damaged beyond repair; however, Houston was fortunate that its main economic drivers, including the local petrochemical facilities, the Port of Houston and the Texas Medical Center, received very little impact.
Commercial real estate stood strong against the storm as well. In total, more than 11.7 million square feet of office space was damaged, around 4.8 percent of Houston’s total office stock. Additionally, more than 15,000 units – 2.5 percent of Houston’s total apartment stock – were damaged. Fifteen apartment buildings in total reported all units were significantly damaged by Harvey, leading to zero percent occupancy. Houston’s extensive industrial inventory emerged from the storm relatively unscathed. Retail properties fared far better than most other commercial buildings with a little over one million square feet being affected. Single-family homes were the most impacted forms of real estate, with almost 10 percent of all homes in the Houston metro area reporting some kind of damage from Harvey.
The vast majority of damaged properties were located in submarkets through which the Buffalo Bayou or other smaller waterways run. These waterways swelled up after the Harris County Flood Control District announced it would begin a controlled release from Houston’s two man-made reservoirs on the west side of town, Addicks and Barker reservoirs, in order to prevent catastrophic failure. When the release began, 8,000 cubic feet of water per second was sent down Buffalo Bayou, which runs the entire length of Houston and empties into the Houston Ship Channel. The Buffalo Bayou also flows through some of the largest employment districts in all of Texas, including the Galleria and Energy Corridor, contributing to much of the commercial and residential damage throughout the city. From Fortune 500 companies to regional retailers, almost every aspect of Houston’s economy was affected; luckily it recovered and excelled.
Rainfall from Hurricane Harvey continued through August 29; however, by Monday, September 5, 90 percent of businesses had re-opened, and 95 percent were open the following Monday. The University of Houston’s Institute for Regional Forecasting reported that Harvey’s impact on the greater economy was over by late 2017. The large amount of job growth that Houston experienced in the aftermath of Harvey was back to its normal averages by December of 2017.
Jump forward to today, Houston is creating jobs at its fastest rate in almost five years. Year-over-year job growth for July 2018 was 101,800 jobs, a 3.4 percent increase from 2017. Houston’s rate of growth was more than double the national rate of growth for the same period. Additionally, Houston outperformed the entire state in employment growth rate by over 30-basis points for the 12 months ending July 2018. All things considered, Houston has grown and excelled far faster than anyone had thought.
That was all one year ago. It has been nearly 365 days since Houstonians encountered one of the worst storms in American history. But look how far we have come. Houston stood strong with the Astros as they battled their way to become world champions. Ordinary people from across the city came together with boats, trucks and any available resource to help their fellow Houstonians. An article from French international news agency Agence France Presse said it best:
"In Devastated Houston ‘Nobody Hates Anybody’ As People Come Together."
From record rainfall to record economic growth, Houston is back. But what is next for Houston? Projects. It goes without saying that Harvey showed where Houston needed work. Houston needs to update its infrastructure. Luckily, millions of dollars have already been injected into Houston for the sole purpose of flood prevention. The upcoming Harris County Flood Control District Bond Program, if passed, will allow for various modification projects for bayous and other Houston area watersheds.
But what about the city as a whole? Houston has shown its resilience and innovation over this past year. The city is experiencing explosive employment and population growth and is projected to keep doing so for the foreseeable future. Ray Perryman, a Waco-based economist, forecasts that Houston’s economic growth will outpace the nation’s and the state’s over the next five years. By 2045, Houston’s total number of employed persons is projected to be more than five million, and population is expected to exceed 10 million residents.
The real estate industry is experiencing this growth first-hand. Since Hurricane Harvey, across all commercial product types, more than 730 sales transactions have occurred in Houston, according to Real Capital Analytics (RCA). Additionally, the most expensive medical office building sales transaction ever occurred in July of 2018. Two new, top-quality skyscrapers are being developed downtown, and both are already leasing new tenants. Single-family home sales set a new all-time record in June, and average multi-family occupancy is 90 percent for the entire Houston market. Simply put, people continue to want to be in Houston – and for good reason. Houston is still the "Energy Capital of the World" and we still have the largest export market in the United States and the largest medical complex in the world. These facts will seldom change. Houston will always be a business-friendly city that welcomes people from across the world.
The main takeaway from Hurricane Harvey is the importance of being prepared. Houston has shown it is serious about flood mitigation and has already started improving its infrastructure. Houston will always be a world-class city with a diverse economy that mirrors entire nations. It is an exciting time to be a Houstonian, and we are excited to see where we are headed.