Real Estate Investing in Houston: Understanding an Oil Town in an Uncertain Economy
Houston now has a solid and diversified economic base which allows it to ride out oil fluctuations. Image from Wikimedia Commons
Real estate investors in Houston know that the city is, historically, one of the most volatile big cities in America. Houston is deeply connected to the oil industry, and when that industry suffers, the real estate market tends to suffer with it. In theory, this means that recent price drops, with the Brent Crude Index hovering in the mid-40s for most of 2015, should have shaken the Houston real estate market to its core. However, the real estate market held steady and is actually poised for future growth, which indicates great things moving forward.
There are a number of reasons for this. A more diverse economy and a stronger overall market mean that Houston is better prepared to withstand the shocks that come from dealing with unpredictable fluctuations in the oil industry. A construction boom is attracting businesses and residents to formerly moribund areas and the economy as a whole remains fundamentally strong. For real estate investors who have concerns about Houston, these signs show that it is no longer a city tied to just one industry.
Real Estate Investing in Houston: Understanding the City
When looking at Houston real estate, it’s important to understand a few key things about the area:
- Houston is about more than oil. It’s easy to imagine Houston as an industry town but, while oil is the dominant business, the city is diversified beyond that. Houston has 26 Fortune 500 headquarters, which puts it at #3 in the nation. This shows a broader economy that isn’t as dependent on oil as it used to be.
- Different businesses attract new jobs. Last year, Houston created 120,000 new jobs in healthcare, education, engineering, construction, and manufacturing. A wide base helps to paper over oil slumps. Houston expects to add 60,000-70,000 new jobs every year for the next five years.
- A consistently growing population. Even in an oil downturn, the industry isn’t going away, so Houston’s population continues to rise. Indeed, Houston has only lost population twice in the last 40 years – in 1987 and 1988. Otherwise, it has weathered the storms, and continues to do so. Of course, that doesn’t mean the housing market is unchanged…
- Lower oil prices mean more diverse housing options. For years, Houston had an overvalued housing market, with milion-dollar homes springing up around town. With the market shift, those homes are no longer as popular, causing many experts to predict a rise in condo sales. People who can no longer afford the seven digit price range want something more compact and flexible. This has led to the construction of more affordable, but still luxurious, condos and apartments. A building slowdown has led to a two month inventory in housing, which will make condos even more popular.
- A revitalized central business district. Downtown Houston has seen a dramatic surge in building over the last half-decade, with many mixed-use, multi-family towers going up. This has changed the flavor of the area. Right now there are approximately 4,000 people living in the downtown area. That’s expected to triple in the next five years.
- Space to grow. Industrial vacancy is at a healthy 7.6%, and while commercial real estate space is underpriced, there’s plenty of room for growth as those thousands of new jobs start to pour into the downtown area.
These factors all add up to an economy that is looking increasingly positive for real estate investors. A steady base that is growing in diverse ways, which may rocket up again if oil prices rise, is a great bet for investors.
Key Neighborhoods in Houston
At Origin, we look at cities on a neighborhood-by-neighborhood – and even block-by-block – basis in order to see where the best opportunities lay. Some of the most important neighborhoods in Houston include:
Central Business District/Downtown: Visitors who haven’t been downtown in the past 20 years would be stunned at this development – a once downtrodden area is now bursting with new shops, new restaurants, new mixed-use, multi-family developments, and new life. It’s a growing area on the verge of a boom for both residential and commercial investments. The 4th-largest business district in the US is about to become a major hub for residents.
- Inner Loop:With easy commuting access to over 600,000 jobs, the Inner Loop is considered one of the best places to live and work in the country. Neighborhoods like Timbergrove/Lazy Brook, Southgate, the Heights and the Museum District are seeing huge growth and are considered some of the hottest in the state.
- Southeast Houston: Home to the University of Houston and Texas Southern University, this district attracts businesses looking to find the next top talent, making it a promising area of residential and commercial real estate.
- Woodlands: A hub for international business, this area boasts new multi-families, incredible shopping, great eating, and everything people moving to Houston could want. It was once a bedroom community, but it’s now a draw, and a great place to invest.
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- West Houston/Galleria. The Galleria is a brilliantly planned mixed-use urban development, with retail, commercial, and residential buildings mixing in the Uptown Area. Upscale shopping and dining, along with the proximity of jobs, means that people flock to this still-growing area.
- Southwest Houston. A growing neighborhood filled with apartment complexes that are ready to be renovated and capitalized as new residents move to the city.
- Energy Corridor: Located along Interstate 10, the Energy Corridor is home to some of the best and most desirable residential and commercial complexes in the city. Great dining, living, and shopping combine with easy commutes and tons of area jobs- the Corridor is home to both corporate headquarters and a growing number of startups. Two huge natural parks in the region make this a dream neighborhood.
At Origin Capital, we understand Houston and we know where to invest to ensure the most success. We know how it’s changing and how to be successful in a hinge market. With new areas of investment and new industries moving in, you need someone who has studied the market and can drill deep. Origin Capital knows Houston real estate, and we’re excited to be your partner.
If you are a real estate investor looking to broaden your portfolio and join other investors in major developments in Houston or other markets, Origin Capital Partners would be excited to work with you. At Origin Capital Partners, we have a powerful connection with the cities we invest in and we understand what makes them tick. We know which areas are booming and which commercial and residential investments will make the most sense moving forward. Our Funds deliver consistent returns, because we know how to make sense of the real estate market. Contact us today to talk about how your investments can grow with the city.
