Energy Fuels Growth in Zoning-Free Houston

"Houston is clearly a growth leader," said Walter Page, director of office research at Property and Portfolio Research. "It was the first major economy in the U.S. to register more jobs than it lost in the recession." Since August 2008, employment is up 3.7 percent compared to New York's 0.7 percent. The city's office vacancy rate is down 13.4 percent from last year, according to the CoStar Group, and strong real estate sales reflect the interest and growth of the market. Developers are building 15 major office buildings in the first three quarters of this year to meet strong demand for office space in the area of the city where energy companies are clustered. "The global energy industry is headquartered here," said Mark Cover, Hines's chief executive for the southwest region. "It's not just oil and gas, it's alternatives too. Intellectual capital in the energy field is heavily concentrated here."

Without zoning laws, the city is essentially market-zoned, "because land prices are not based on zoning rights, they’re based on purely capitalistic, highest and best use value," says Cover. "Market forces shape the city’s development in hubs, says Jim Knight, who heads land development in Texas for Bury & Partners, an Austin-based engineering firm." Hence energy companies and major employers cluster downtown, while refineries and distribution centers open near the ports. Employees want to live closer to work so developers build apartments and homes around these areas. The increasing population attracts services and retailers, and the city continues to flourish.

Woodlands, a master-planned community 27 miles north of downtown, is becoming one such hub, with a town center oriented to pedestrian traffic and connections to a network of hiking and bike trails. Exxon Mobil is breaking out of the "energy cluster" mold by building a new campus there on 385 acres for 10,000 employees, perhaps demonstrating that the market for livable communities is stronger than the market for co-locating next to your business associates.