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2012 market update from Harris County
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2012 market update from Harris County


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The Property values are going up. Leave it up to Commercial Tax Network to make sure you are not a victim of high property taxes this year!

The Property values are going up. Leave it up to Commercial Tax Network to make sure you are not a victim of high property taxes this year!

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  • 1. Valuation Outlook for 2012 Harris County Appraisal District March 22, 2012 Agent Meeting
  • 2. Positive Economic Trends Oil prices have stabilized; on shore drilling has returned to a robust pace, off shore drilling in the Gulf lags pre-BP oil spill numbers Houston has regained 111% of jobs lost during recession Increase in sales tax revenue
  • 3. Job Growth in 2012 The Greater Houston Partnership (GHP) forecast calls for the region to add 84,600 private sector jobs in 2012, with private sector gains far more than offsetting public sector losses. Public sector will continue to shed jobs, particularly for school districts and colleges as a result of fiscal constraints
  • 4. Factors Affecting Job GrowthA series of policy barriers to local growth remain inplace: Cap and trade EPA regulations on carbon sequestration End of manned space flight Slow return to Gulf of Mexico drilling Possible business model changes related to the Health Care Reform Act and reduced State of Texas budget The European Debt Crisis
  • 5. Outlook for Real Estate Recovery The housing sector will rebound slowly as it continues to clear out the current inventory of foreclosures Local job growth and energy sector will increase housing starts in second half of 2012. Most of the new growth will be in Ft. Bend and Montgomery Counties. The northern portion of Harris county will benefit from the new Exxon campus beginning in 2013.
  • 6. National Obstacles to Real Estate Rebound Strict lending standards Uncertainty of government support of home ownership  Possible scaling back of mortgage-interest income tax deduction  Proposal on how to revamp the Fannie Mae, Freddie Mac and the broader mortgage market
  • 7. 2012 “Best Case” Scenario According to Greater Houston Partnership market analysts, “Houston has completed the recovery and is now in expansion mode.” This expansion will hopefully begin to impact the 2013 tax rolls
  • 9. Single-family Home Price• Average price of single-family homes in December was $219,791, flat over last year• Median price rose 1.6 percent from one year earlier to $160,000 - All time high for December in Houston
  • 10. Single-family Sales VolumeSales of single-family homes increased in December for theseventh time this year with a 7.2 percent gain. On a year todate basis, sales are up 4.3 percent. Up from December 2010 7.2%
  • 11. Available Inventoryof Existing Single-family Homes Month-end pending December sales were up 3.0 percent from last year Active listings declined 14.1 percent over December 2010 Available inventory was reduced to 5.8 months compared to 7.2 months one year earlier  Still remains favorable compared to national average inventory of 7.0 months  Resale market appears to be nearing a balance of supply and demand
  • 12. Townhouses and Condominiums Sales volume rose 3.2 percent compared to one year earlier Average price climbed 2.5 percent to $173,675 from Dec. 2010 to Dec. 2011 Median price declined 4.9 percent to $131,750
  • 13. New Home Market Houston has 6.9 months of new home inventory  Still a buyers market New home starts paced to reach 17,000 for 2012  Down from 18,048 starts last year
  • 14. New Home Starts by Price Distribution Price Range Segment $100,000 $150,000 $200,000 $250,000 $300,000 $400,000< $99,999 $149,999 $199,999 $249,999 $299,999 $399,999 $499,999 $500k > 184 4,107 4,075 2,830 2,111 2,612 998 1,499Source: Metrostudy
  • 15. Parcel Creations 45,000 41,872 40,340 41,965 40,000 35,329 34,429 35,000 29,732Number of Parcels 30,000 25,023 25,000 21,301 19,762 20,000 17,109 15,000 10,000 7,359 5,802 5,643 5,000 0 Tax Year NOTES: 1. Minimum parcels to be created per sum of Lots and Reserves shown on recorded plats and number of Units to be created from condominium declarations. 2. Number does not reflect street and right-of-way dedication parcels. 3. Data information is current as of Jan. 17, 2012 for instruments recorded up to Dec. 30, 2011.
  • 16. Subdivision/Condo Recordings 2,000 1,815 1,791 1,754 1,800 1,701 1,592 1,600 1,443 1,388 1,400 1,310Plats/Instruments 1,188 1,200 946 944 980 1,000 927 800 724 575 600 471 400 200 0 Tax Year NOTES: 1. Plat/Instrument totals for each year were filed and recorded the previous calendar year. 2. 2011 count reflects instruments recorded up to December 30, 2011.
  • 17. Local Obstacles to Housing Recovery Greater restrictions on mortgage lending  Renting vs. Owning Tightened capacity for construction lending Land development  Demand vs. Availability Most new development in Fort Bend and Montgomery Counties
  • 18. Residential 2012 Valuation Overview Market Market Pct Chg Pct Chg ParcelsNo Change Decrease Increase (with N/C) (minus N/C) w/ Caps 629,956 306,663 101,210 1.46% 1.10% 29,109 Total Res Percent Percent Percent Percent Parcels No Change Decrease Increase Capped 1,037,829 60.70% 29.55% 9.75% 2.80%
  • 20. Apartments Multi-family market near top of investor demand  Considered least risky of major property sectors Pronounced decline in new construction late 2010 and increase in renters created positive absorption during 2011
  • 21. Apartments: Rental Rates and Absorption Rental rate growth of 3.5 percent in 2011  Caused by failing home ownership and growing market of renters who previously opted to live with family Positive absorption and higher occupancies have decreased concession offerings  In comparison to 2010, where 54 percent were given free rent, 45 percent of apartment communities are offering concessions as of December 2011
  • 22. Apartments: RentalRates/Occupancy/Concessions # of Average Class Properties Rate Occupancy Concessions A 358 131.7 92.6% -7.0% B 1,021 88.9 91.1% -7.1% C 1,043 68.6 83.9% -7.0% D 488 47.9 77.4% -6.7% Overall 2,910 86.1 87.6% -7.0%
  • 23. Apartments: Capitalization Rates Average cap rate by quarter has been erratic Nationally, average overall cap rate for 2011 was 5.8 percent  Decline from 2010 rate of 6.51 percent Locally, twelve-month rolling cap rate was 5.7 percent for 2011  Significant decrease from 2010 rate of 7.3 percent
  • 24. Apartments: New Construction Moderate increase over 2010 Twenty-six new complexes totaling 4,197 units opened for leasing activity  Ten of twenty six are senior housing Proposed construction of 39 properties totaling 12,602 units
  • 26. Change in Office Valuation Model Market trends indicate net rental rate should be used in place of full service rate HCAD changed the office model for Class ‘A’ Office and Class ‘A’ and ‘B’ Medical-Offices
  • 27. Commercial Real Property Office Buildings Signs of market stabilization:  Increase in 2011 sales dollar volume and leasing activity  Decrease in vacancies  Increase in rental rates
  • 28. Office New Construction Remained slow throughout the Houston area  2,484,237 square feet under construction during 2011  Pre-leasing remains prerequisite for construction Slowing of construction buffered the office market from more dire predictions Notable 2011 deliveries include:  BG Group Place with 972,474 square feet at 70 percent occupancy  Hess Tower with 844,763 square feet at 100 percent occupancy
  • 29. Office Building 2011 vs. Class ‘A’Vacancy 12.7% down End of 2010 from 13.3% Class ‘B’ Class ‘C’ 13.6% down 10.8% down from 14.3% from 11.1% Overall office vacancies have decreased to 12.8%
  • 30. Office Building Rental Rates Slight decrease in • Creating upward vacancy rate pressure on rental 4th quarter sales rates up over 3rd • Reduction in quarter concessions through 2011 All classes reflect increases in 2012 compared to 2011
  • 31. Office Buildings: Absorption Preliminary reports indicate Houston absorbed 2.8 million square feet in 2011  Up from negative absorption of 320,000 square feet in 2010 Gravitation toward quality with tenants transitioning from Class ‘B’ to Class ‘A’ office space  Occupied by energy and related firms
  • 32. Office Buildings: Capitalization Rates Average cap rate for all Harris County office buildings in 2011 was 8.03 percent  Noticeably lower than the average of 9.39 percent for year-end 2010 Overall cap rates expected to decrease by 25 to 125 basis points (The lower the cap rate, the higher the value)
  • 33. Office Buildings: 2012 Valuation Increase projected in all classes of office space County wide Double digit increase in occupancy and rental rates have resulted in lower cap rates which translates to higher values
  • 34. Medical Office Buildings/Condos Medical real estate is faring better than other property types due to:  Aging baby boomers demand for health care services  Relocation of some medical procedures to outpatient settings, such as surgical centers, imaging and diagnostic centers, and free-standing 24-hour emergency care centers
  • 35. Medical Office Buildings/Condos Outperforms traditional office space  Stabilized occupancy and rental rates  Long-term leases  Creditworthy tenants  Steady income streams Considered safer investment  REIT’s actively seeking Class “A” medical office buildings located in compounds
  • 36. Medical Office Buildings/Condos: Rental Rates Texas Medical Center Suburban MarketsClass PSF Rate Type PSF Rate Type A $15.00 - $23.00 NET $12.00 - $21.00 NET B $12.00 - $18.50 NET $8.00 - $18.50 NET FULL FULL C $16.00 - $19.00 SERVICE $13.00 - $17.50 SERVICE FULL FULL D $14.00 - $16.00 SERVICE $10.00 - $13.00 SERVICE
  • 37. Medical Office Buildings/Condos: New Construction New construction slows due to uncertainty of how health care reform will impact industry  Developers cautious on speculating However, demand for medical care from growing population will require additional space  According to the U S Census Bureau, Harris County’s general population has been growing at an average of 2.3 percent per year
  • 38. Retail Increased occupancy  Overall vacancy rate decreased to 6.7 percent in 2011 from 8.2 percent in 2010 Positive absorption of 979,791 square feet in the 4th quarter of 2011  Exceeded positive absorption from 2010 Rental rates slightly down from 2010  Reduced amount of new construction  Expected that positive absorption will correct supply and demand in overbuilt markets causing upward pressure on rents
  • 39. Retail: Vacancy Highs and Lows Highest vacancy rates are in the Far North and Lake Houston areas  about 12 percent Lowest rates are in the Galleria and Uptown areas just outside the CBD  Less than 2 percent
  • 40. Retail: Rental Rate Highs and Lows Highest rental rates were in Downtown, Galleria, and areas inside the West Loop, such as Greenway Plaza and River Oaks  Rents ranged from $25 - $36 per square foot Lowest rates were in Pasadena, Galena Park and Channelview school districts  Rents ranged from $10 - $12 per square foot
  • 41. Hospitals Expansion and renovation projects continue  Hospital Corporation of America’s West Houston Medical Center  The Women’s Hospital of Texas West Houston  Clear Lake Regional Hospital  Values likely to increase slightly
  • 42. Malls Positive net absorption in 2011 Vacancy rate remained at 7.0 percent in 2011 Rental rates increased from $22.90 per square foot to $23.76 per square foot General Growth, which owns Baybrook, Deerbrook and Willowbrook malls has received $500 million in pledges to help it emerge from bankruptcy and grow the value of its malls  These properties are in litigation for 2011
  • 43. Department Stores Of the 59 stores in Harris County only 44 remain open Sears reported decreased sales in 2011 and announced the closing of some stores in region Dillard’s Houston sales remained flat while JC Penney reported sales were up Macy’s reported eight stores with increases, some double digit and two stores with decreases Nordstrom and Neiman’s project increased sales of 4-10 percent and 3-5 percent, respectively
  • 44. Hotels-Motels Average daily rates have increased by 2.8 percent in 2011 Overall, Revenue Per Available Room (RevPar) increased an average of 6.2 percent in the Houston area Area-wide occupancy rose to 57.7 percent in 2011, and is expected to be about 63.2 percent in 2012 Values will be increasing slightly
  • 45. Warehouses Fourth quarter reports indicate that industrial warehouse market has started to stabilize Net absorption was positive and overall vacancy rate decreased to 5.0 percent  New speculative construction activity has picked up  Most new construction pre-leased  Demand for new projects will continue as amount of available space shrinks Rental rates have experienced slight increases and capitalization rates have declined slightly Economic drivers pointing to recovery in this property type and they will see a slight increase in values for 2012
  • 46. Vacant Land Land sales through fourth quarter were 844 in 2011 compared to 588 in 2010  Only 62 were foreclosure and 130 were auction sales Sustained demand for land near CBD, Texas Medical Center, West Houston, and inside the loop Lenders slowly financing new projects, but more selective Investors still concerned with uncertainty in the economy
  • 47. Vacant Land: 2012 Valuation Amendments to the restrictions on development in City of Houston floodways Flattening of appraised land values  Despite slight increases or decreases, the market is showing signs of improvement  Similar to the national market, local market participants are waiting for further developments During construction of the light rail project, properties along the rail line will decrease 15 to 20 percent in appraised value
  • 49. Refineries Total U.S. refined product consumption currently for 2011 has been less that 2010, but greater than 2009 Inventories of crude expected to be consistent with 2011, but per barrel pricing will be higher Increased product margins for refiners in U.S.  Healthy global demand  Natural gas prices remain relatively low Gulf Coast refiners impacted by crude price differences
  • 50. Refineries: 2012 ValuationIt is expected that refinery values andinventories will be higher (double digit) in2012 relative to 2011.
  • 51. Chemicals Chemical-related inventory volumes should be near the levels they were on January 1 of 2011 Value changes for most chemical facilities look to be flat or down coming into 2012, but up for olefin plants due to lower natural gas prices Chevron Phillips closing operations of their Pasadena Polypropylene plant
  • 52. Utilities: Electric Values are expected to increase in 2012 compared to 2011 CenterPoint Transmission and Distribution operating income was up 7.9 percent for the first half of 2011 compared to the first half of 2010  Since income is a major factor in the unit valuation for CenterPoint, the increase in income will be reflected in the total value for 2012
  • 53. Utilities: Gas Companies in the Natural Gas Utility industry have continued to struggle Softness in the housing market, a persistently high unemployment rate, and a lukewarm pace of the GDP growth rate have all weighed on this sector Public’s concern over lingering recession has increased conservation and stunted revenue growth for this industry
  • 54. Utilities: Gas Storage Facilities will have little change in the infrastructure and will result in a flat value of the plant and equipment for 2012 Gas volumes are expected to remain stable for 2012. However, natural gas pricing was up 4.3 percent in 2011 from the previous year Recent court rulings have indicated that large volumes of stored gas are in interstate commerce therefore exempt(1st court) or that they are taxable(2nd court)
  • 55. Utilities: Telephone Telephone Utilities’ overall should continue to decline The continued competition from customers relying solely on cell phones and Voice Over Internet Protocol (VOIP) offered by cable companies will continue to have a negative effect on values
  • 56. Utilities: Cable Cable companies are looking at a decrease in value due to limited investment, depreciation of their current assets, and the poor economy The futures of cable and telephone companies are unstable due to intense competition in their market Ability for these industries to provide phone, television, and Internet has led to a very challenging economic environment for both industries Telecommunications will continue to get less expensive as technology advances
  • 58. Dealer Inventory Total value of Dealer Inventory increased 9.58 percent in year 2011 Increase of 34.6 percent in vehicle sales for 2011 over 2010 Since the value of the inventory is directly tied to the prior year vehicle sales, an increase in value for 2012 is anticipated
  • 59. Business Personal Property Overall, personal property tax base declined approximately 1.72 percent for tax year 2011 Value for this sector is expected to stabilize for 2012 as economic optimism gains momentum
  • 60. Harris County 2011 vs. 2010 Taxable Value Comparison Taxable Value Pct. 2011- January 2012 Difference 2010- January 2012 Category Parcel Tax Val Parcel Tax ValResidential 1,029,694 117,665,396,564 0.91% 1,020,708 116,605,524,436Apartments 13,960 18,430,270,405 4.15% 14,014 17,696,281,106Commercial 57,048 63,403,439,123 5.98% 56,752 59,825,142,062Vacant Land 164,163 9,519,480,473 -2.71% 170,133 9,784,732,334Industrial 2,037 15,439,813,61 6.29% 2,047 14,525,916,034Utilities 7,517 4,215,369,028 -1.82% 7,370 4,293,672,578Commercial Personal 163,721 23,691,823,055 -0.55% 164,449 23,823,978,598Industrial Personal 10,202 24,172,943,559 2.34% 10,336 23,619,484,610,Other 104,160 569,922,805 -21.11% 104,097 722,423,422Totals 1,552,502 277,108,461,773 2.29% 1,549,906 270,897,155,180
  • 61. Harris County – Preliminary Estimate of 2012 Taxable Value ($$$ BILLIONS $$$) Property Category 2011 2012 Overall % Tax Base Tax Base ChangeResidential & Rural Improved $117. 665 $117.869 0.0017Apartments $18.430 $20.410 0.1074Commercial $63.404 $67.645 0.0669Vacant Land $9.520 $9.893 0.0392Industrial Real $15.439 $16.348 0.0588Utility $4.215 $4,160 -0.0132Commercial Personal $23.692 $23.604 -0.0037Industrial Personal $24.173 $22.722 -0.0600Other $0.570 $0.634 0.11242011 Roll: 2012 NetJanuary, 2012 2011 Roll Value Net Total Pct. Chg $277.108 $283.285 2.23%
  • 62. Changes in the Value Base and 2012 Estimated Taxable Value 350 300 $279 $281 $271 $277 $283 $253 250 $225 $205Taxable Value $193 200 $175 $184 (Billions) 150 100 50 0 Tax Year
  • 63. Questions?