This article appears in the July 16 issue of Forbes magazine.
Direct Energy Chief Executive Chris Weston needed a new home for his company, which provides electricity, natural gas and home energy services to 6 million residential and business customers across North America. The Toronto firm considered as many as 15 cities for its new headquarters, but only one ever really had a chance. “Houston was the obvious answer in the end for us,” says Weston.
In January his company announced that it would relocate its office to the booming Texas city and hire 200 people immediately. The move will generate an annual local economic impact of $59 million, according to the Greater Houston Partnership.
Why was Houston so obvious? “You have a constellation of energy companies in Houston, and the city provides a stable structure with its political and regulatory commitment, which we find extremely important,” says Weston, who’s led the $10-billion-in-sales subsidiary of U.K.-based Centrica since 2009. Others agree. Exxon Mobil is building a 385-acre corporate campus here that will accommodate 10,000 employees. The company announced this month it was transferring 2,100 employees from Fairfax, Va., as well as 110 from Akron, Ohio, to Houston. BP and Anadarko Petroleum are consolidating U.S. operations here as well.
Oil and gas drive the Houston economy and are responsible for 50% of the jobs related to the export of goods and services outside the area. But that’s gone way down over the past 30 years. Energy represented 87% in the early 1980s. That diversification helped Houston emerge from the recent recession faster than any other large U.S. city. Houston’s employment dropped 16 straight months from its peak in August 2008. Yet the carnage was much worse in other major metros like Riverside, Calif. (48 straight down months), Phoenix, Ariz. (38), Los Angeles (36) and Minneapolis (36). Houston and Washington, D.C. are the only major metros to have recovered all the jobs they lost in the recession.
Houston ranks No. 20 in FORBES’ 14th annual ranking of The Best Places for Business and Careers (for the Top 25, see p. 100). While the rest of the country plods along, Houston’s $384 billion economy boomed by a China-like 8.6% in 2011, best in the U.S., and is expected to expand 8.5% this year. Job growth has been the eighth best in the country since 2006, at an annual 1.2% pace. Moody’s Analytics forecasts employment gains of 3.2% a year through 2014, which would rank Houston sixth among the 200 largest metro areas. People are chasing those jobs. The Houston metropolitan area, with a population of 6.1 million, experienced a net migration gain of 313,800 new residents during the past five years. Compare that with the three metros bigger than Houston: New York, Los Angeles and Chicago. They had a combined loss of 365,700 (see chart).
Houston went through a devastating recession in the 1980s as the price of oil plummeted and 220,000 jobs were lost. The recent economic downturn was much shallower for Houstonians. The price of oil plunged again (down more than $100 per barrel between July 2008 and December 2008), but energy companies did not overreach this time in the climb up to $145 oil. Only 1,200 oil and gas extraction jobs, or 2.6% of the total, were lost during the recent recession, and companies have since added back 7,200 jobs in the sector. Home builders also avoided the overdevelopment seen in other cities like Phoenix. The result: Home prices increased 16 of the past 17 years, according to Moody’s Analytics. The only decline—in 2008—was less than 1%.
Energy continues to power the economy, but health care, transportation and technology are gaining. Three of the four top medical research institutions in Texas are based here. The Texas Medical Center, employing 92,500 people (annual budget: $14 billion), is the largest in the world and includes the renowned MD Anderson Cancer Center. The Port of Houston ranks first in the U.S. in foreign tonnage and first in U.S. imports, generating $179 billion in annual statewide economic impact, according to a 2012 study. NASA and the Johnson Space Center make it an aerospace hub as well. “[Oil and gas] is still king here, but there are so many different pieces to it that we are not a one-industry town,” says Mayor Annise Parker.
Recent nonenergy companies making the move to Houston include Waste Connections, the third-largest trash hauler in the U.S. It moved its headquarters from Sacramento, Calif. this year to escape the poor California business climate. Dow Chemical announced plans in April to construct a new ethylene production plant, a $470-million-a-year bonus for Houston’s economy.
In all there are 68 publicly traded companies with more than $1 billion in sales headquartered in Houston, second only to New York, with 83. Twelve billionaires call Houston home, led by energy titan Richard Kinder, worth $8.2 billion.
What could slow Houston down? A prolonged period of cheap oil would certainly sting. “The energy industry is very volatile, and that adds volatility to Houston,” says Edward Friedman, an economist who tracks Texas for Moody’s Analytics. Still, Friedman thinks the emergence of China and India as economic powers will keep oil prices from collapsing anytime soon.
Farouk Shami, founder and chairman of Farouk Systems, which manufactures more than 1,000 beauty products, moved his manufacturing operations from China to the U.S. over the past three years. He says costs increased 15% after the move, but it was worth it because he produces a better-quality product—resulting in fewer returns—and no longer has three months of inventory sitting on the shelves. Farouk now employs 2,000 people in the area. Shami, a Palestinian-American who took a run at the Texas governor’s office in 2010 but lost decisively in the Democratic primary, is decidedly pro-Houston. “Houstonis the future of America,” he says. America could do a lot worse
This article appears in the July 16 issue of Forbes magazine.
http://www.forbes.com/sites/kurtbadenhausen/2012/06/27/houstons-business-climate-heats-up/
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