|Texas Quarterly Commercial Report||Texas Quarterly Commercial Report||James P. Gaines, Luis B. Torres, Harold D. Hunt, Clare Losey, and Carter Neill||2019-02-28T06:00:00Z||technical-report||Commercial|
Click here to receive email notifications each time this report is published.
Fourth Quarter 2018
The Texas economy accelerated in 2018 in the midst of one of the longest expansionary cycles in recent history. Activity and production strengthened in a multitude of industries. Record highs were reached in crude oil production, single-family housing starts, commodity exports, and multiple employment categories. The labor force participation increased, and the unemployment rate sank to a 40-year low. The Texas economic expansion is poised to continue throughout 2019, but potential headwinds are building. Downward pressure on oil prices, augmented by a slowing global economy, the trade war with China, and higher interest rates, present the greatest economic challenges on the horizon. For additional commentary and statistics, see Outlook for the Texas Economy.
The overall strong performance in the Texas economy translates into a positive outlook for the commercial real estate sector. The Texas Nonresidential Coincident Index, which measures current construction activity, indicates growth may slow as nonresidential construction values declined and interest rates increased in 2018. However, the Texas Leading Indicator, which measures future construction activity, indicates growth may slow as nonresidential construction values declined and interest rates increased in 2018.
The pace of commercial mortgage borrowing and lending moderated in 2018. Compared with the first half of 2017, office borrowing remained unchanged. Overall, the dollar volume of mortgage originations in the office sector has stabilized since 2015. While industrial borrowing showed little movement from the first half of 2017, dollar volume of mortgage originations increased sharply from 2016 to 2017. Over the long term, retail borrowing has declined in dollar value of mortgage originations; new loans on retail properties measured 70 percent lower than 2007. Although market fundamentals remain strong—low long-term interest rates and increasing property values have incentivized commercial activity—mortgage borrowing and lending activity suggest that the performance of each sector varies.
The state's solid economy relies on the performance of the four major MSAs. Austin's economic activity held steady during 2018 as job growth continued its upward trend and wage gains followed. Employment continued to climb in Dallas-Fort Worth (DFW) with the goods sector leading job growth. In Houston, the overall outlook remains positive, supported by recent strong and broad-based job growth, although at a slower pace than during the oil boom. In contrast, San Antonio's job growth was softer through 2018, registering lower employment growth than the other MSAs.
The outlook for 2019 appears to be positive for the major Texas MSAs due to the strength of the U.S. and Texas economies. Although oil prices dipped in late 2018, fundamental factors appear to provide a positive tailwind moving forward. Interest rates should continue to rise as inflation increases. On the negative side, volatility in the oil market, a slowing global economy, and a declining trade environment remain the greatest headwinds to the Texas economy, challenging some of the state's most productive industries. Although Mexico, Canada, and the U.S. announced an unofficial trade agreement, the net impact of the proposal is still uncertain. The U.S. economy may slow in 2019 as the effects of the 2018 fiscal stimulus dilute.
Previous reports available:
|Digital and Print||2211||https://www.recenter.tamu.edu/articles/technical-report/Texas-Quarterly-Commercial-Report|| https://assets.recenter.tamu.edu/Documents/Articles/2211.pdf|