Houston has a lot to be proud of looking back over the past decade. Despite the challenge of modest global growth in the wake of the Great Recession, headwinds from Hurricane Harvey and the 2014 fracking bust, Houston managed to add jobs in 4 out of every 5 months since January 2010. This impressive streak of economic growth added more than 600 thousand new jobs through the decade across wide balance of employment sectors.
Looking ahead to 2020, there is broad consensus for continued expansion. Moody’s Analytics projects 64,600 jobs to be created in the greater Houston metro this year, in line with the 62,100 jobs that the University of Houston Institute for Regional Forecasting foresees in their baseline model with oil prices averaging $55-60. The Greater Houston Partnership, anticipating softer energy and retail markets, has a more conservative outlook of 42,300 new jobs in 2020.
To see why a conservative outlook for energy is to be taken seriously, it is important to look beyond the headline of a 35% increase in oil prices though 2019, closing out the year just above $60/bbl. In truth, oil prices traded in a tight band in 2019, with the lowest volatility of the decade. Given the average breakeven price to profitably drill a new well in the Permian Basin is in the range of $48-54, the UH IRF baseline leaves slim margin for profit. Companies feel pressure to discipline spending to remain competitive.
As a reminder of how consolidation in oil and gas can shake up the office market, just look to the monster deal announced in the final hours of 2019 between Occidental Petroleum and The Howard Hughes Corporation. The $565 million deal secures 1.4M square feet of Class A office space in The Woodlands along with another 1.3M square feet in the Energy corridor on the 63-acre campus formerly occupied by ConocoPhillips.