America's fourth-largest city was on an economic roll late this summer, brimming with confidence. And why not? Houston's economy generated 57,100 new jobs in the 12-month period ending July 31, according to the Texas Workforce Commission. Its 5% unemployment rate in August was healthier than the 6.1% national average. Even the metro area's 11.7% office vacancy rate in the second quarter outperformed the 13.8% national average.
Then Hurricane Ike — a category 2 storm with winds up to 110 miles per hour — barreled into town on the morning of Saturday, Sept. 13, causing extensive property damage and massive power outages. The central Gulf Coast suffered between $8 billion and $12 billion in property damage, making it the third-costliest storm in U.S. history. While many parts of the city remained without electricity a week after the storm, downtown powered up thanks to underground electrical lines.
Houston's oil-driven economy took a hit. The U.S. government reports that 49 oil rigs in the Gulf of Mexico were destroyed. It could take months to get all the oil platforms back in operation.
Although damage to downtown office buildings was relatively light, not all structures escaped unscathed. High winds blew out most eastern windows on 40 floors of the 75-story JPMorgan Chase Tower, the state's tallest office building.
“It was the worst storm I've ever seen,” says Chip Clare, president of the Gulf Coast region for Houston-based Transwestern, the city's largest commercial property manager with 36 million sq. ft. managed.
Brookfield Properties Corp., downtown Houston's largest office owner with more than 9 million sq. ft., reported minimal damage. Its buildings reopened within days of Ike's passage. A week after the storm, damaged windows in the JPMorgan Chase Tower were boarded up but workers were back in their offices.
Sanford Criner, executive vice president with CB Richard Ellis and a 35-year veteran of Houston's office market, says Ike won't leave a significant mark. “It hasn't closed up any excess space, nor has it forced anyone out of this market.”
Another local veteran, Bob Cromwell, managing director with brokerage firm Moody Rambin, says Ike's damage was moderate. “We have gotten a few requests for 5,000 to 50,000 sq. ft. of temporary space. But it's been since 1983 that we had a direct hit like this and I don't think people are going to shy away from Houston because of the storm.”
Ike was the fifth major hurricane to hit Houston in three years, but the market has shown resilience. Grubb & Ellis reports that the office market absorbed nearly 694,000 sq. ft. in the first half of 2008. The main worry is an expected 2.3 million sq. ft. of new office space slated to deliver in the second half.
Investors seem undeterred. “We'll continue to look there,” says David Steinwedell, executive vice president of AIC Ventures, an Austin-based company that has completed more than $500 million in sale-leaseback deals. “As long as Houston has a viable economy, it's going to be a good investment market. You might have higher insurance costs, but if their economy stays on course, guess what? Money is going to go there to invest.”