What will 2018 bring to Houston’s bustling business community?
We turned to some of our reliable sources for their observations and predictions for the year to come. Here’s a compendium of what we learned:
Economy to get closer to normal
Houston’s economic growth will accelerate in 2018, but the metro area won’t regain its normal pace of expansion as the energy sector continues its recovery from the recent oil bust, said Patrick Jankowski, senior vice president of research at the Greater Houston Partnership. Jankowski expects Houston to add around 45,000 jobs in 2018, below the historical average of 65,000 jobs annually. Oil companies, the backbone of Houston’s economy, will purchase more equipment from local energy services companies, but higher oil prices won’t necessarily translate into hiring in the industry, where employment is projected to remain flat. “We’re not expecting to see the oil industry take off,” Jankowski said. “Otherwise you’d see Houston boom again.”
Oil and gas to see modest growth
The industry recovery that has been concentrated in U.S. shale should broaden in 2018, said James West, an energy analyst at the investment bank Evercore in New York. Oil and gas spending should grow close to 4 percent internationally, West said, while U.S. investments should continue to serve as the pacesetter and grow by at least 15 percent. The Energy Department expects U.S. crude production to average a record 10 million barrels a day in 2018 and prices to average almost $53 a barrel, up from around $50 a barrel in 2017
Jordan Blum and Collin Eaton
Bull market to keep running
As interest rates rise and Wall Street’s honeymoon with the regulation-slashing Trump administration fades, the surge in stock values is expected to moderate. But major stock market indices could still gain 10 percent in 2018, about half the appreciation of 2017, said Gil Baumgarten, a Houston financial adviser. “To have 20 percent growth in back-to-back years, that’s pretty unprecedented,” said Baumgarten, president of Segment Wealth Management in Houston.
Harassment wave will end up in court
Houston employment lawyer Scott McLaughlin expects an avalanche of sexual harassment litigation as women come forward to accuse prominent men of misdeeds. Companies may end up before judges trying to explain why they didn’t respond initially when employees complained about inappropriate comments, unwanted touching and sexual assault. “It appears to me to be a watershed moment,” McLaughlin said.
Good luck getting a work visa
Houston immigration lawyer Gordon Quan believes companies will face more difficulties obtaining work visas in 2018 as the Trump administration clamps down on immigration. Quan said the visa problems will eventually cause more companies to shift their work offshore, much as Microsoft did when it opted to open an office in Vancouver, British Columbia, when it couldn’t bring foreign workers to Seattle.
Houston’s startup scene will blossom
Companies specializing in interconnected devices known as the ‘internet of things’ and data science startups are poised to attract more venture capital. “This is the stuff that will allow the oil and gas companies to continue to drill and continue to produce at higher margins,” said Blair Garrou, managing director of Houston investment firm Mercury Fund. Houston Exponential, an initiative for boosting Houston’s appeal to technology investors and innovators, is expected to break ground on a tech innovation district. A new investment fund, HX Venture Fund, is also expected to get off the ground in 2018. “All of these things are coming together at the same time, so I think 2018 will be pretty exciting,” Garrou said.
Harvey impact will linger…
With support of the Houston Metropolitan Chamber of Commerce, small businesses will continue to recover from the record storm. Peggy Wilson, chamber president and CEO, said her organization has partnered with chambers in New York and New Jersey, which developed recovery methods in the wake of Hurricane Sandy aimed at ensuring that small businesses, especially those with 10 employees or less, remain open throughout the year and beyond. “We know that the recovery is long term,” Wilson said.
and its health effects will mount
“The impact of Harvey was so widespread that in 2018 the community is likely to see higher rates of depression, anxiety and post-traumatic stress syndrome” predicted Dr. Melissa Allen, chief medical officer at UTHealth Harris County Psychiatric Center. She knows about the storm’s destruction firsthand. Her own home took on about a half-foot of water, and she and her family are still living on the second floor as they rebuild. In 2018, health care providers will continue to watch for such symptoms as changes in sleep or appetite, flashbacks to the storm, increased fearfulness or difficulty concentrating. “Physicians as a whole are all aware of the increased risk Harvey poses,” Allen said.
Natural gas output to double
Fracking in U.S. shale fields will propel domestic gas production that could double the output of the previous peak in 2014, according to the energy research firm Wood Mackenzie. That could, in turn, could fuel the growth of liquefied natural gas exports and the Houston companies leading the industry.
Keystone XL work will get started
TransCanada, after years of regulatory holdups, will finally begin construction on the Keystone XL pipeline, predicted Frank Maisano, a partner at the law firm Bracewell. Some have questioned whether the project still makes sense, but, Maisano said, “The market needs more infrastructure, and infrastructure is going to be a key component of the president’s agenda” in 2018.
Offshore will need more investment
After a rough few years, Gulf of Mexico oil production could turn around in 2018 as offshore companies emerge from bankruptcy. But that won’t happen, said Tim Duncan, CEO of Houston’s Talos Energy, if investors stay away, and if the oil services sector doesn’t beef up its presence in the Gulf, too. “To fully recover,” Duncan said, “you need the whole supply chain to recover with you.”
The boom continues at Port Houston
The container boom and steel market recovery should continue in 2018 at Port Houston, Executive Director Roger Guenther said. Containers passing through its terminals are expected to increase 8 percent and steel imports by 3 percent. The port also will add three cranes to handle larger ships coming through the Panama Canal. The $37.5 million investment will bring the port’s total to 13 cranes at Bayport and Barbours Cut container terminals capable of unloading the larger ships.
Houston airports get upgrades
New technology, flights and construction will come to the Houston Airport System, chief operating officer Jesus Saenz Jr. said. Terminal D at Bush Intercontinental Airport will get an automated security lane. United Airlines will begin service to Sydney, Australia, this month. Southwest Airlines is expected to expand its international service at Hobby Airport. The expansion of the international terminal at Bush should get underway, too.
New-home sales to increase
Homebuilders should see an uptick in sales of less than 5 percent in 2018, housing analyst Scott Davis said. Builders have had “a phenomenal fourth quarter” in 2017, said Davis, a senior vice president for Meyers Research. “I think Harvey has been part of that.” But builders should expect tighter development regulations in flood plains as a result of Harvey, Davis said. “If I’m looking at remodeling, building or renovating, I’d consider that as part of my plans.”
Construction labor in demand
The high demand for construction laborers has not ceased in Houston, and Marianela Acuña Arreaza, executive director for Fe y Justicia Worker Center, doesn’t see easing anytime soon. Arreaza noted that this shortage would worsen in 2018 if the Temporary Protected Status of Salvadoran immigrants expires. Construction companies would no longer be able to legally employ these workers, Arreaza said.
Building costs will keep rising
Construction costs will continue to go up in 2018. Labor costs, in particular, have skyrocketed after Hurricane Harvey, said Will Holder, president of Houston homebuilding company Trendmaker Homes. “There’s no doubt the next group of homes coming up will cost builders more and will cost more to buy,” Holder said.
Industrial real estate strength
Developers will continue to see strong demand for industrial real estate, driven largely by e-commerce distribution centers. In fact, 2018 could see another 1 million-square-foot distribution center break ground, said Robert Clay, owner of Houston-based Clay Development. Rising oil prices will also help manufacturers, which in turn could spur more industrial development.
Houston’s office market to improve
Houston will see an uptick in office leasing activity in 2018 driven by lease expirations, predicts Chip Colvill, president and CEO of Colvill Office Properties. While Houston’s office market is still working through a glut of sublease space, Class A occupancy, reflecting the city’s best buildings, will rise to the low 80 percent level, Colvill said. “We’re going to have a lot of absorption in 2018.”
The gateway to Texas Retailing
More retailers looking to open stores in Texas will target Houston as a first stop, predicted Jason Baker, a principal with real estate brokerage Baker Katz. “I am consistently on the phone with retailers wanting to start in Houston.”
Auto sales will level off
New vehicle sales are expected to plateau at 306,000 units, according to the TexAuto Facts Report, published by Sugar Land-based InfoNation. Truck and SUV sales, however, are again expected to rise. Already, those vehicles claim nearly 70 percent of the Houston-area market share. “That means people are buying vehicles that are a little pricier than a passenger car,” said Steve McDowell, owner of InfoNation.
Coal not dead yet
Coal’s days may be numbered, but it still has a few good years left, including 2018, according to the Energy Department. Forecasters there expected coal production to increase in 2018 as higher natural gas prices make the much maligned fuel more competitive. Renewables will continue to cut into coal’s share of power generation, but natural gas and coal will continue to fight it out for dominance in the power sector in the year ahead.
Ryan Maye Handy
Not even Trump will try this
The Trump administration will probably maintain the 2009 EPA finding that greenhouse gas emissions pose a public health risk, despite pressure from some conservatives to scrap it, said Luke Johnson, a lobbyist at Brownstein Hyatt Farber Schreck. Doing so would force the White House to challenge a 2007 U.S. Supreme Court ruling.
Obamacare will stand
Republicans removed a pillar of the Affordable Care Act – the individual mandate – but Dr. Arthur “Tim” Garson, director of the Texas Medical Center’s Health Policy Institute, predicts that Congress will do little in 2018 to further unspool Obamacare. That said, Garson fears the uninsured rate in Texas could climb again, erasing the gains of recent years as people shed coverage either because they feel they don’t need it or skyrocketing premiums make coverage unaffordable. “If premiums and the number of people who have insurance begin to go in opposite directions – and they will – the question is how bad will it get,” Garson said.
‘Critical year’ for electronic sports
While 2017 became the year electronic sports, or esports, formalized itself with major tournaments, franchises and a salary system for players, 2018 will test the industry’s ability to keep the momentum going, said Sebastian Park, director of esports development for the Houston Rockets. “It’s going to be a critical year,” Park said. The Rockets team, through its billionaire owner Tilman Fertitta, has created an esports team called Clutch Gaming to compete in the 2018 North American League Championship Series.
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