NAI Partners I Data InSight - Guiding Business Analytics in Commercial Real Estate Vol. 1, Issue 2
Houston, Texas - April 14, 2015 -
How will commercial real estate perform in Houston in 2015 given recent shocks in oil prices? While low energy costs will stimulate the economies of most cities and states in 2015, those with prominent oil sectors, like Houston and Texas, are likely to experience economic slowdowns. Nevertheless, net employment and economic growth in Houston and Texas are still forecasted to be positive. Here, we ask whether job growth can predict demand for commercial real estate, given that the decline in oil is occurring in a backdrop of positive economic growth.
Our analyses reveal a positive relationship between job growth and net absorption for office, but not industrial space. Increases in Houston's job numbers are accompanied by increases in the absorption of office space. Specifically, annual job growth explained a sizeable 50% of variation in annual net absorption of office space from 1999 - 2014, which ranged from -500,000 to +9,000,000 sq. ft. (Figure 1). Though less than the 100,000 jobs created in recent years, forecasts for Houston's job growth in 2015 still remain positive, ranging from 46,000 to 63,000. For the most likely forecast of 52,600 new jobs in 2015, we predict office absorption to be about 3,617,000 sq. ft. The 80% prediction interval for this absorption is 591,000 to 6,643,000 sq. ft. That is, 8 out of 10 times (0.80 probability) absorption will be in this range for this level of job growth. Thus, while job growth and office absorption will likely decrease in 2015 compared to 2014, it is unlikely that either will turn negative.
Data InSight is a monthly business-to-community (B2C) whitepaper series that uses data analytics to look at current and historical trends in commercial real estate (CRE). Indeed, like many other industries, CRE is undergoing a revolution in the volume, velocity, and variety of data being generated. At NAI Partners, we are embracing this data revolution through data science --- the process of using the scientific method and statistics to extract knowledge from data. Complementing its full CRE platform and more than 500 years of broker and professional experience, NAI Partners offers a data analytics consulting service to guide its clients in their business intelligence and decision making in CRE.