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Houston industrial’s rising tide lifting manufacturing sector
As the price of WTI crude oil has averaged around $66.25 per barrel during 2018, we are seeing demand once again for crane-served manufacturing buildings. Due to the close ties with upstream oil, Houston’s manufacturing sector is more prone to economic changes arising from the volatility in oil production, particularly in machinery and fabricated metals production. Here, we consider how manufacturing employment, Texas rig counts, and WTI crude oil prices are influencing Houston’s manufacturing industry.
Manufacturing employment and the oil industry
Houston continues to report strong gains in manufacturing employment, according to data from the U.S. Bureau of Labor Statistics, and the state has seen unprecedented growth in recent years, per the Federal Reserve Bank of Dallas. Manufacturing in Houston added 6,500 jobs from July 2017 to July 2018, marking the ninth consecutive month of annual growth. The local durable goods manufacturing industry produced all of the sector’s job growth over the year, with fabricated metal product manufacturing adding nearly half of the sector’s jobs (+3,100). Area employment in manufacturing rose 2.9% from July a year ago, compared to 2.6% nationally. These changes in manufacturing job growth are directly correlated with the Texas rig counts. Baker Hughes reports 528 drilling rigs were running in Texas during the last week of August. That’s up 72 rigs, or 15.8%, from the same week in August last year. The rig count has trended upward since early November.
Houston no. 1 for potential economic growth
Recently, Houston was named by Business Facilities as the No. 1 large metro for potential economic growth, according to the publication’s 14th annual Metro Rankings Report. The release highlighted that helping Houston’s economy diversify beyond oil and gas industries, the area has one of the largest concentrations of industrial space in the nation, and the region has room to meet future demand. Another statistic that assisted in taking the top ranking was that Houston remains among the top cities for manufacturing employment growth, noting that the region has about 6,400 manufacturers that employ more than 240,000 skilled workers and produce $80 billion in goods a year. In addition, Houston ranked No. 2 in manufacturing GDP in the U.S.
Large manufacturers call Houston home
Some of the largest manufacturing operations in the southeast U.S. are here in Houston—from Daikin Texas Technology Park in Waller County, a 4.2 million-sq.-ft. largest tilt-wall structure in the world and the second largest manufacturing facility in North America to Mitsubishi Caterpillar Forklift America which employs more than 800 at its facility in west Houston. Additionally, current inventory in the region can accommodate distribution, heavy industrial and advanced manufacturing facilities that include corporate amenities such as: TGS Cedar Port, the largest master planned rail and barge service industrial park in the U.S.; Generation Park, a 4,000-acre advanced manufacturing park; and West I-10 Industrial Park, a 1 million sq. ft. industrial facility on over 200 acres.
Healthy industrial market in Houston’s future
With the downturn in the oil industry finally over, more companies are reporting profits than losses, and fewer firms are filing for bankruptcy. Oil is now trading above break-even cost for most producers, allowing exploration budgets to increase. Most analysts forecast the price of oil between $60 and $70 per barrel through the end of next year. The U.S. Energy Information Administration agrees, forecasting WTI to average $66 this year and $64 though the end of 2019. All of these factors will pave the way for increased demand in manufacturing buildings. Many of the large oilfield service companies are back in the market evaluating options, and we expect to see a number of large manufacturing deals done between now and the end of the year. Barring any unforeseen event, we see no end in sight for a healthy industrial market for the remainder of the year.
Director of Research
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