CoStar has posted an article where investors are pondering exiting the Houston market. Houston is unique in that it follows the cycles of the Oil & Gas industry. As oil prices rise, rents and occupancy rise. As prices drop (as they have over the past year) then market levels drop. It doesn’t help that there is no consensus on the future growth of oil prices currently to help with forecasting the future.
This gives us a case of market uncertainty which is classically associated with risk. Investing in uncertain, down markets is considered a risk. Makes sense other than it is a short term play. We know two things about Oil & Gas: 1) Everyone needs it and while demand may be slowly dropping, demand is going nowhere anytime soon; 2) Oil & Gas companies are really good at making profits regardless of current market conditions – there may be short term bumps along the way but they know what they are doing.
Given a period of time to adjust to the current state conditions (because most don’t believe $100 / barrel pricing will return soon) Oil & Gas companies will adapt their businesses and soon re-enter growth mode. The question that needs to be asked is whether growth in US oil production will continue. I haven’t seen anyone suggest that it won’t.
Therefore if you believe that US energy policies will continue to encourage US production, oil prices may have some room to go lower but likely not much, and oil and gas companies have the ability to adapt to the market then Houston is not a bad bet right now. Add to this the fact that while Houston is known as Oil & Gas, low market levels will also encourage other industries to come in and take up some of the available space and labor resources.
Just my 2 cents.