Counting Harvey’s Cost

Hurricanes, tropical storms and floods are familiar occurrences in Houston and the surrounding Texas Gulf region; more than eight severe floods/hurricanes have impacted the Houston MSA since 1998.

But when Hurricane Harvey struck the region near Rockport, TX on August 25, the Category 4 storm was the strongest to hit the region since 1961, dumping more than 50 inches of rain in a matter of days and causing extensive property damage due to flooding.

In addition to its devastation on Greater Houston, Harvey’s impact was national in scope as well. Port Houston—the largest U.S. port in foreign tonnage and home to the nation’s largest petrochemical complex—closed for four and a half days after the hurricane and reopened on September 1. Most refineries along the Texas Gulf Coast, which is the nation’s largest producer of oil and gasoline, have also restarted operations, while others, such as Valero, have returned to pre-storm fuel-making rates. Nationally, consumers will see an increase in gas prices of about $0.08 – $0.10 for the next several months.

Houston is a major distribution hub because of its massive seaport and strategic location along well-established supply networks. Interstates 10, 69 and 45 are among the busiest highways in the U.S. and ultimately connect Los Angeles to Jacksonville, Houston to Port Huron, and Houston to Dallas. Flooding and other unforeseen hazards caused disruptions to not only regional, but also global supply chains since late last month. Re-routing inefficiencies, costing approximately $53 million daily, will be short-lived as water and other obstructions are cleared from Houston highways.

Overall, Houston’s recovery will take time, but the area’s strong economy will help it rebound soundly. In Hurricane Harvey’s aftermath, CBRE has completed an initial assessment of the impact on local and national commercial real estate. Following are highlights of our findings.

 

Office:

  • Fewer than 40 office buildings, or 4.2 percent of Houston’s office stock, suffered damage.
  •  Displaced companies already are looking for temporary, turnkey space, likely soaking up some of the 11.1 million sq. ft. of availability in the market. Others that had marketed space for sublease have withdrawn it to preserve their options.

Industrial:

  • The majority of Houston’s warehouse and distribution center market weathered the storm without major damage.
  • Expect a spike in demand for warehouse space from building supply companies, charities and consumer-goods distributors, which will further constrict availability.

Retail:

  • Most damage limited to neighborhood and strip centers in hardest hit submarkets. Still, displaced retailers looking for space face a tight market.
  • Houston’s retail sales will increase, especially for vehicles, home-improvement goods, furniture and appliances.

Multifamily:

  • Up to 100,000 apartments were flooded, amounting to one of every six units in the area.
  • Expect occupancy rates to rise and concessions for new renters to be curtailed amid the rise in demand.

Hotel:

  • In other metro areas struck by hurricanes in recent years, hotel occupancy increased by an average of 15 percent for the four months after major storms.
  • The additional demand in Texas stands to deliver a 4.4 percent gain in revenue per available room for the U.S. hotel industry rather than CBRE’s previously forecast 3.5 percent gain.

By Spencer Levy, Americas Head of @CBREResearch | Senior Economic Advisor, CBRE.

To read the full report, click here.