While many parts of the country have not fully emerged from the housing crisis and recession, Texas continues on a tear with new building and thriving residential and commercial real estate markets.
And that shows no sign of letting up.
Construction crews are finishing office towers, industrial buildings, rental apartments and single-family homes — and breaking ground on others to meet demand from expanding businesses and the growing number of people who work for them and need homes.
Single-family homebuilding rebounded dramatically in 2012 after a trough in 2011 and is on pace to gain this year while home sales also rebounded in 2012 from a 2010 trough, with more gains on pace this year, said Mark Dotzour, chief economist of the Real Estate Center at Texas A&M University.
"Apartment construction has been happening throughout the Great Recession because of the continuous increase in population and employment levels," Dotzour told IBD by email. "Commercial real estate construction for office and industrial properties has resumed in Houston and other Texas large metro areas.
Not Just Energy
Dallas led major U.S. office markets in vacancy rate improvements in the third quarter with a 100 basis point drop to 18.1%, according to real estate services giant CBRE Group (CBG). Demand came from the professional services sector — insurance, technology and financial services.
Meanwhile, tight housing supply in Houston, Dallas and Austin could spur "further gains in prices in the months ahead," noted ZipRealty CEO Lanny Baker in a recent trends report.
What's different from some other parts of the U.S.? A solid economy. The building- and business-friendly state sat out most of the housing bubble, which helped it through the recession. And it doesn't hurt that Texas is a capital of the booming energy industry.
"Virtually all sectors of the economy are expanding in Texas this year," said Dotzour, ticking off oil and gas, leisure and hospitality, and business and professional services.
Jobs Spur Construction Jobs
It's no wonder Texas leads the U.S. in construction job growth.
The state added 24,200 construction jobs over the past 12 months through August, the latest detailed data available. That's 14% of the 168,000 added nationally, according to Bureau of Labor Statistics data. Texas boasts 611,300 construction jobs despite an August dip. Economists and property developers say the construction boom throughout the state, whether office, housing or industrial, is being fueled by one main driver: jobs.
"The big picture in Texas that sets it apart is the incredible job growth," said Adam Saphier, president of central Texas operations for Trammell Crow, the national development firm and subsidiary of CBRE.
Texas employment leveled off during the summer. But payrolls are still 932,600 jobs higher than in January 2008, when national payrolls peaked. The rest of the U.S. is still down 2.85 million.
Job growth in Houston, Dallas and Austin is twice that of the national average, Saphier said. Houston alone added 13,000 jobs in the last year. The state's 6.4% jobless rate is almost a full percentage point below the national rate, even with heavy migration from other states.
"Houston is one of the hottest office markets in the country right now," said Ken Simonson, chief economist of construction trade group the Associated General Contractors of America, adding that most areas of the country still aren't seeing much new office construction.
"Houston will continue to be the global leader in the energy industry. It's a clustering effect not unlike what you see in Silicon Valley with technology," said Jeffrey Carter, chief investment officer with Franklin Street Properties, an office REIT.
Several oil companies are expanding to new office buildings, among them ConocoPhillips (COP), Chevron (CVX) and Noble Energy (NBL).
Exxon Mobil (XOM) has a massive construction project under way on a campus that will sprout 20 buildings, able to accommodate 10,000 employees.
Houston's office development is "still not excessive" when measured against demand, said Carter.
Dallas may not be growing as strongly as Houston, but it's more diverse. Fortune 500 companies dot the centrally located business and logistics hub.
Since 2011, Trammell Crow has built office buildings in Dallas for Yum Brands' (YUM) Pizza Hut and MedAssets (MDAS), a health care tech firm. It's just completed one for Swedish telecom equipment maker Ericsson (ERIC). It's about to break ground in Fort Worth on a regional office for the Federal Aviation Administration.
"All of those were build-to-suit and none was energy," Saphier said.
Austin has become a thriving technology hub.
Lone Star Attraction
Texas has long been a business-friendly state, which has made it a magnet for companies wanting to relocate from more stressful states, such as California.
"Lower taxes, less onerous regulations and less stringent labor laws, plus a booming energy economy, have really helped the state," said Ryan Severino, senior economist with real estate research firm Reis.
Texas has no corporate tax or personal income tax. State and local incentives have drawn new businesses, not just in energy.
Texas also makes it easy for builders to build.
"Entitlement and permitting is a cake walk compared to many parts of the country," said Jed Reagan of Green Street Advisors .
That can be good if you're a developer first in on a new cycle, he said.
"But if you're last to the party it's not going to work out well. There is always new construction popping up next to your building," Reagan said.
Overdevelopment in the past has left Dallas' office market with a legacy of high vacancy rates. But they have been falling lately.
Houston's office market had an office vacancy rate of 30% in 1983 after oil prices collapsed. And when Houston-based Enron imploded in the early 2000s, the somewhat recovered market saw offices empty out again.
Houston avoided overbuilding in the most recent recession. And surging demand for space has lowered the office vacancy rate to around 14% even as new supply has come on, well below the national average of 17%, Reagan said.
"The ongoing risk of new supply always needs to be front of mind if you're expanding in Texas," Reagan warned.
But supply and demand are pretty much in balance across the state now. Texas is in the "middle innings" of its recovery, he said.
"It definitely did not fall as much as other parts of the country, and it started to recover more quickly," he said.
The perky housing market in Texas is contributing to the Lone Star State's growing economy. Three of the top-10 U.S. metro markets with the highest number of annual housing starts are in Texas, according to a recent Metrostudy report. Houston and Dallas/Fort Worth are at the top of the list, while Austin places ninth.
Unlike other land-constrained Sunbelt states such as Florida, Texas still has lots of land for development. That's one reason home prices didn't rise as much during the housing boom. And so they didn't fall as much, either.
The 2011 single-family housing market in Texas saw just 67,254 building permits issued, Dotzour notes. The next year permits were up to 81,926, and this year is apt to notch 90,000. Residential-home sales volume, which were down to 203,637 as reported in the Multiple Listing Service in 2010, increased to 238,056 by 2012, Dotzour said. He estimated sales would reach more than 280,000 units this year.
Home prices in Texas are back to new highs, according to the latest surveys by CoreLogic (CLGX).
Meanwhile, 23,500 rental units are under construction in the Dallas area, near a record high. Occupancy levels are at 94.4%, a 12-year best, MPF Research said.
Some 17,000 rental units are under way in Austin, while 16,000 units are going up in Houston.
Texas has added nearly 4.3 million residents over the past decade, putting its population at more than 26 million, CBRE noted in a recent report.
"Houston and Dallas/Fort Worth weighed in with more people added than any of the nation's other 365 metro areas with expansions of 1.23 million and 1.21 million, respectively," the report noted.
More people are coming. Texas is expected to attract more than 2 million new residents by 2018.