HOUSTON OFFICE MARKET REPORT — FOURTH QUARTER 2018

ECONOMIC OVERVIEW

Houston’s economy has shown signs of accelerated growth as employers expanded
their payrolls by 114,400 jobs over the past 12 months ending in November 2018,
representing a 3.7% increase for the period. The largest annual employment gains
occurred in professional & business services (31,700 jobs), construction (24,000
jobs) and manufacturing (14,000 jobs). Meanwhile, the metro area’s unemployment
rate has fallen 60 basis points to 3.8% over the past 12 months to reach its lowest
seasonally adjusted unemployment rate since April 2008.

The energy sector found itself in a downward spiral during the fourth quarter as record high
oil production and fears of another global oil glut triggered a collapse in WTI
oil prices from a high of $76 per barrel in early October down to $45 per barrel in
December 2018. A recent deal by OPEC and Russia to scale back production for the
first-half of 2019 may have prevented another widespread industry collapse, but there
are lingering concerns among analysts that strong U.S. production from shale oil fields
and a slowing global economy could keep oil prices near current levels. How long oil
trades at these levels will not only test the claim of fracking companies that they can
still make money below $50 a barrel, but also the strength of the energy industry’s
recovery. Economists predict that if prices stay below $50 for an extended period,
this could stall the energy sector’s recovery and slow Houston’s economic growth
as oil companies begin to scale back spending and hiring. However, the U.S. Energy
Information Administration (EIA) expects that the recent price declines, combined with
the OPEC production cuts, will bring supply and demand into balance in 2019 which
should lead to a gradual stabilization of oil prices and a return to a lower-volatility
environment.

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