North Texas 2010 outlook for major industries

Experts offer thoughts on banking, education, health care, real estate and high-tech industries

When the calendars flipped over to January 1 earlier this month, we not only brought an end to 2009, but also an end to the first decade of the new millennium. Many welcome the fresh start to a new year and a new decade.

During the past 10 years, North Texas has seen much growth and change. In March 2009, the Census Bureau estimated our population at 6.3 million people, an increase of more than 1.1 million since the 2000 Census.

The past decade has also shown growth in our corporate prowess. According to the 2009 FORTUNE 500 list, North Texas is ranked fourth in terms of FORTUNE 500 companies headquartered in the region with 25, but we’re ranked second in revenue earned by these corporate citizens. Just 10 years earlier, North Texas was home to 17 FORTUNE 500 companies.

“The new year and new decade are sure to bring new opportunities and potential to North Texas,” said Dan S. Petty, president and chairman of the North Texas Commission. “With all the eyes on the region for Super Bowl XLV in February 2011, the support of Proposition 4 for our higher education and the successful launch of Leadership North Texas, we are well on our way to solidifying North Texas as the region of choice.”

To get an idea of the outlook for North Texas for 2010, we asked several of our members to share their insights on the horizon for their industries.

Banking

The banking industry has seen its shares of ups and downs over the past 18 months and it seems that 2010 will continue to be a challenging year for many in the banking industry. The industry’s move to tighter credit standards over the past year combined with high unemployment mean that fewer individuals will be able to borrow money. And many consumers are more cautious about entering into any type of debt during these uncertain economic times.

Angie Owens, president of the American Airlines Federal Credit Union, says the stable property values in North Texas prevented us from feeling the effects of the recession as deeply as some other parts of the country.

“While we did not see the huge gains in housing values, the good news for North Texas is that we have also not seen large declines,” said Owens. “The North Texas economy has been affected by the recession; however property values remained more stable here than in other parts of the country.”

The banking industry will face much change in the year to come, especially when it comes to a slew of new regulations that will impact how business is conducted from disclosures to pricing to product offerings. And adapting to the new and quickly changing regulatory environment will be key to growth.

“The banking industry is going to have to rethink its model and look instead to responding to consumer needs by offering a wide array of products that are customer-focused,” said Owens.

Education

The end of 2009 brought an important milestone for Texas’ higher education institutions, the passage of Proposition 4, which stemmed from HB 51, legislation that creates a pathway for the state’s emerging research universities to become top research institutions. Through a variety of funding streams, HB 51 provides much-needed support and resources to the seven emerging research universities throughout the state.

Proposition 4 established the constitutional funding source for the National Research University Fund, which supports a university’s research capacity once it meets certain qualifications and is one of the programs laid out in HB 51. HB 51 also established the Texas Research Incentive Program (TRIP), a matching funds initiative.

Three North Texas universities, the University of North Texas, the University of Texas at Arlington and the University of Texas at Dallas, have the opportunity to become tier one – or national research – universities with the help of HB 51 and Proposition 4 and TRIP funding.

“HB 51 signals the state’s commitment to investing in higher education and creating a stronger pool of top research universities, and it has energized the higher education community,” said Gretchen M. Bataille, president of UNT and a member of the NTC Executive Committee. “Support from our community and partners will be essential because TRIP in particular is predicated on our success in bringing in private dollars to fuel our initiatives.”

The benefits of Proposition 4 extend beyond the classroom into the boardroom throughout the region. Virtually every industry in North Texas and throughout the state will feel the effects of having more national research universities, UNT President Bataille said. These universities help attract and retain top students who will then stay and work within the state, adding to our knowledge base. They will lure expert faculty from around the globe whose research spurs innovation and new industry, which then opens up opportunities for commercialization within the region. And together, they will help Texas pull in millions more in federal grant money, fueling the state’s economy.

“The work of UNT, UTA and UTD is the definition of regional collaboration,” said Petty. “By these universities working together, the entire region wins; our students, our corporate citizens and every one of the more than 6 million people that call North Texas home.”

Health Care

Health care is one of the most talked about topics today with the pending reform in Washington, but the health care industry is also one of the top industries in North Texas. Health care will continue to have a positive economic impact on our region in the New Year with employment opportunities in nursing, information systems and information technology as well as in the area of pharmacy, laboratory and radiology.

“2010 will be a year of continued growth in the health care industry in North Texas as our population continues to grow,” said Joel Allison, president and CEO of Baylor Health Care System. “However, I believe the growth will be at a slower pace than it has been over the past five years because of the uncertainty in the capital markets and pending health care reform.”

In addition, 2010 will also bring its share of challenges, most notably how to address the uninsured population in our state, which is one of the highest in the nation at 27 percent, part of the ongoing debate on health care reform. One concern of the proposed reform is the shortage of primary care physicians available to see newly covered patients; however, the package’s positive impact will result in more physician alignment initiatives and the development of new models of care in our region.

“The Baylor Health Care System has decided to reform health care regardless of what is passed in Washington by creating our own model of what is often referred to as an Accountable Care Organization. Our own model, which will be called the Baylor Quality Health Care Alliance, will allow us to deliver care through an organized clinical network of providers aligned to proactively address cost, quality and capacity issues that exist within the current fragmented health care delivery environment,” said Mr. Allison.

With pending changes, the emergence of new technologies, including nano-technology and job growth, the health care industry is positioned to experience some of the most significant changes in the New Year and new decade.

Real Estate

Cautiously optimistic. That’s how local real estate experts would describe their outlook for North Texas’ real estate market for 2010. North Texas, as well as Texas in general, has been less impacted by the economy than the rest of the country. This is primarily due to three factors; our central location, our favorable weather climate and our business-friendly attitude of low tax burdens and flexible labor markets.

After an 18 month long rollercoaster ride, the New Year signals the start of the recovery stage in commercial real estate, with 2010 remaining to be a “tenant’s market,” especially in large vacancies. With landlord’s willing to meet the current market conditions to attract tenants, it is anticipated lease transaction velocity to be much improved from 2009.

“The overall sentiment among tenants for 2010 is optimistic,” said Chris Teesdale, SIOR, a representative of NTC member The Allen Group and Executive Vice President of Colliers International. “Manufacturers are considering capital expenditures they had postponed last year, refined supply chain efficiencies have been implemented and orders are up. As confidence returns and corporate profits improve, consumer spending will not be far behind. This is a good foundation for a recovery beginning in 2010.”

Although tenant volume is expected to increase in 2010, according to Tom Pearson, SIOR, Executive Vice President of Colliers International, it will not be until 2012 before speculative development returns, which will initially occur in a few submarkets.

“This is an opportune time for communities to be working towards long term infrastructure plans and financing through traditional funding mechanisms and federally assisted programs. They will want to be well positioned when the market rebounds,” said Pearson. “Developers will be looking for site ready locations, and forward thinking communities will benefit.”

This year shows to be a positive year for job growth for Texas with North Texas taking a large piece of the employment pie. Because commercial real estate in our region has been considered a more reliable market by the investment community, more investors are anticipated to acquire properties in 2010 than in 2009. With more investors vying for properties and job growth on the increase, there is a strong outlook for an increase in property sales in 2010.

High-Tech

Technology is one of the cornerstones of the North Texas economy. The late 2009 announcement of TI’s RFAB is a major sign that North Texas’ tech sector remains strong and the future looks bright. Bill Sproull, president and CEO of the Metroplex Technology Business Council, believes that 2010 will only bring positive growth for this industry and a return to profitability.

“In telecom and consumer electronics, we are seeing a lot of interesting new applications coming for the iPhone and other portable devices, the launch of Google’s and HTC’s new Nexus One phone, the advent of 3-D television, some really cool tablet PC’s and other exciting innovations,” said Sproull. “All of this is being driven by consumer demand, and the innovation itself is spurring further demand, as consumers look forward to embracing the latest and greatest technology.”

Tahir Hussain, president and CEO of Fusion Solutions, a national high-tech staffing firm, agrees that all signs point to a positive growth for the telecom sector for 2010 and a key opportunity lies in the expansion of 4G services. “If you look into the Telecom sector, there is a lot of innovation going on in this region in comparison to some of the other metropolitan areas.”

“There are some key telecom carriers who have decided to launch their first commercial 4G sites in 2010 and plan to expand in other markets in the following years,” Hussain continues. “Key equipment vendors who have their headquarters or major operations in North Texas will continue to play a role in the deployment of 4G networks and services.”

The IT services industry has seen a number of big consolidations recently; Dell acquiring Perot Systems, Xerox acquiring ACS and HP acquiring EDS. Sproull predicts that these combinations should spur spin-offs and start-up entities. “We’ve long been a global leader in IT services, and I think we’re going to continue seeing a lot of innovations coming out of this region.”

North Texas’ technology industry is one area that stands to reap the benefits of Proposition 4 with the establishment of one or more Tier One research universities through the National Research University Fund, attracting an even greater concentration of knowledge to our region. In addition to spurring innovation, Proposition 4 provides the basis for supporting new high-tech companies who will then drive the need for high-tech products and equipment and substantially contribute to the accumulation of wealth in the region, said Sproull.

“A national research university will bring innovation which then leads to commercialization and new ventures,” said Hussain. “Imagine this initiative creating the next Google here in North Texas.”