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Friday, 24 May, 2002, 20:35 GMT 21:35 UK
Houston feels pangs of Enron's collapse
Houston skyline
Storm clouds hover over Houston's economic future

The flagging fortunes of Enron and other regional energy concerns have taken a serious bite out of Houston's economy.

Adding to the woes are falling oil prices and cutbacks at hometown carrier Continental Airlines, which announced 12,000 layoffs following 11 September.

The merger of Hewlett-Packard and Compaq Computer has resulted in more unexpected job cuts as the newly formed firm eliminates redundancies and shifts its headquarters to California.

Downtown Houston under construction
Construction projects litter Houston's downtown
One measure of Houston's economic woes is reflected in the recent growth in available office space, which has soared in the city's central business district.

After it declared bankruptcy in December, Enron, the energy trader embroiled in an accounting scandal, vacated about 800,000 square feet of prime space in landmark office towers.

Houston must now grapple with how to fill the emptied space and keep its much-touted downtown revival on schedule.

Budget battle

Houston's downtown area is in the throws of a massive revitalisation that includes the construction of several more office towers, adding an average of four million square feet of office space to the current surplus.

Local officials fear the fallout from Enron's bankruptcy and increased scrutiny of other energy traders may stall economic growth in the central business district.

For example, when Houston Mayor Lee Brown unveiled his latest city budget, he called for cuts in some city services, in an effort to scale back on expenditures.

Critics say the mayor's $2.6bn (1.78bn) budget represents a less-than studied approach to the current fiscal crisis.

Mr Brown's defenders say the current unpredictable nature of Houston's economy present a real challenge in crafting a fiscal policy that meets the needs of Houston's citizenry while reining in costs.

Filling space

Houston's boom-and-bust economic cycles are legendary. Rising oil prices in the late '70s led to unprecedented growth that collapsed along with oil prices by the mid 1980s.

Dynegy logo on the streets of Houston
Energy giant Dynegy also faces scrutiny
When technology emerged as a driving force in the economy, the rising fortunes of innovative energy trader Enron in the 1990s pushed development in Houston's core.

As the firm grew, it leased prime office while it awaited the construction of a second tower adjacent to its headquarters at 1400 Smith Street.

But last year's accounting scandal and subsequent bankruptcy filing have resulted in thousands of layoffs at the former energy-trading giant with no need for the vast amount of space it formerly occupied.

While Enron continues to use about 20 floors of its 50-storey headquarters, it has vacated three other nearby buildings, leaving property managers scrambling to fill the space.

About half the space in the three other buildings Enron occupied has been leased by the managing agent, Trizec Properties, a large US commercial-property manager that oversees eight Houston properties.

Economic turmoil

Much of the void has been filled with businesses that opted to relocate from other Trizec properties to the space once occupied by Enron, resulting in a mere reshuffling of existing tenants.

Local officials are keenly aware of the impact of the fallout from the collapse of Enron.

Houston city hall
Officials are struggling to balance Houston's budget
If the overall US economy is any indication of Houston's economic future, it might find itself turning the corner sooner than thought possible.

Trizec officials remain confident that they will lease the remainder of space formerly occupied by Enron by the end of the year.

Duelling neighbours

While Houston's glut of office space may be of concern for local officials, they can take heart that things are not yet as bad as they are in neighbouring Dallas.

That sprawling north-Texas metropolis recently showed that a whole one-fifth of its office space is waiting for new tenants.

Houston, on the other hand, has seen its vacancy rates rise to around 9% in the downtown area, and industry experts expect the surplus to rise to about 12%-13% later this year.

Beyond that, however, Houston's fortunes may equal those of its northern neighbour.

Real estate experts expect vacancy rates to hit 20% by the end of 2003.

But Houston can also take heart that it remains a desirable relocation destination.

Earlier this month, another energy trader, TradeSpark, inked a deal to lease nearly 20,000 square feet of space in Houston's central business district.

Its former address was the south tower of the World Trade Center in Manhattan, which collapsed in the attacks of 11 September.

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22 May 02 | Business
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