CCIM March Luncheon

BY RAY HANKAMER

SPEAKER: Dr. Luis Torres, Texas A&M Research Center “Outlook for 2022”

Takeaway: All CRE sectors, including residential, but excluding office, seem poised for ongoing strength in 2022. In-migration to Houston and Texas will create ongoing housing demand in multi-family and single homes, with rents and prices continuing upward and vacancies staying low. Lack of housing inventory created by demand and by soaring construction costs might even continue to push rents and purchase prices higher. Inflation will be attacked by the government but gingerly, to tamper inflation without causing a recession, with expectations of four to five 0.25% rate hikes throughout the year. High gasoline prices will shore up inflation rates. In-migration is coming from CA, FL, NY, IL, CO, GA, VA.

General:

• We are at a 40-year inflation high; 7.9% • Pandemic-accelerated trends are already showing up in our economy; income inequality was accented during COVID-19, with low income/high contact jobs suffering most; high-education jobs expanded • Automation going forward will further impact low-education jobs; Texas has recovered all jobs lost during COVID-19, Houston about 85%, since many lost jobs were in O&G • Wages will continue to rise

Residential:

• Low interest rates encouraged migration out of apartments, and many people migrating into Texas bought large and expensive homes; low mortgage rates are gone now and the housing market will inevitably slow • Both apartment and single home construction material costs are up 20% a year, and lack of single-family inventory has increased prices as demand soars; in spite of demand, there are headwinds in the homebuilding industry • Apartment rents have risen steadily since the beginning of the pandemic as construction costs have risen, with rents up 10% in 2021; apartment vacancies are low and should stay low; apartment construction should remain strong to keep up with demand • People moving to Austin are paying California prices for homes; homebuilders are concentrating on the suburbs where land is available and more affordable than infill sites; frenzied mortgage refinancing should halt • Unlike 2007–2008, there is no housing bubble • People moving to Texas are younger, on average, with higher incomes and are willing and able to buy larger, more expensive homes

Retail:

• Brick-and-mortar stores offer a social experience for people who have been at home, and retail is cleverly blending online with in-person shopping • Low vacancies and mild upward rental rate trends continue; retail construction is up • There is 4–5% vacancy in this sector now

Warehouse:

• Strong rent growth, high demand, and some increasing vacancy rates, though these are mostly due to the large size of projects and lead times required; net absorption is strong, but possibility of oversupply in this sector • Strong in-migration to Texas creates demand for warehouses to supply the new population • Texas’ economy, over time, should return to 2% annual growth • There is 4–5% vacancy in this sector now

Office:

• Work-from-home impacted office occupancy, following the impact from the shrinking O&G sector; in the current demand boom for petroleum, oil companies will not take more space or employees, but will reward stockholders with their companies’ higher profits • Vacancies are remaining at a high level—23%—as indecision remains about the ratio of work-from-home; rents and absorption rates remain flat; slack O&G demand is a major contributor to lackluster office market stats • Office occupancy should see gains from non-traditional users such as life sciences

Ray Hankamer

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