Innovation Culture

By Deborah Lynn Blumberg

For New York City it's finance. For Detroit, cars are king. In Texas, the state's largest city often evokes images of oil rigs and gushing geysers. Oil and gas have fueled growth in Houston for more than a century. In the late 1800s, local businessman Pattillo Higgins — convinced oil was trapped under a sulfurous hill 100 miles east of Houston — hired an engineer to help him dig wells. A few years later, the duo made the greatest oil discovery in history.

A year after their Spindletop well started operating, it was producing 17 million barrels a year. Not long after, oil companies arrived in town, including ExxonMobil predecessor Humble Oil. Soon the city had transformed into an international center for oil and gas. It remains so today.

Yet Houston is much more than an oil and gas town. The city's medical and shipping industries have experienced significant growth over the last decade, and the city has recently begun making a name for itself as a hub of innovation and entrepreneurship. In 2015, Houston produced Plan Houston — its first ever general plan — as a high-level blueprint of the city's vision for future development and city investments.

The petrochemical facilities that dot the shores of the Buffalo Bayou are part of Houston's long-established and booming oil and gas industry. But in an increasingly global and competitive market, the city is looking to diversify and grow its other major economic sectors, including its Innovation Corridor, which will soon be anchored by the 300,000 square-foot Ion Innovation Hub. Photos by Josh Haner/The New York Times and courtesy SHoP Architects.

Houston fosters resilient, diverse economic growth

Plan Houston aims to establish a thriving, resilient, and diverse economy that both encourages and supports entrepreneurs and innovation and provides jobs that support a good standard of living. The plan names several strategies to help get there, including forging partnerships with the private sector and assisting local and historically disadvantaged businesses.

Those efforts appear to be generating returns: In recent years, metro Houston's GDP been growing strong. It hit a 10-year peak of $507.2 billion in 2014 before falling six percent to $472.3 billion in 2016. But it rose again by 3.8 percent from 2016 to 2017 to $490.1 billion. Real GDP in the Houston region is expected to more than double between 2020 to 2045, growing at an average annual rate of 2.9 percent.

Houston's energy industry employs more than 237,000 people, with more than 25 percent of the nation's publicly traded oil and gas firms located in the city. Of the nation's jobs in oil and gas exploration, 26 percent are in Houston, and eight of the 10 largest global integrated oil and gas companies operate in town. The industry is anchored in the Energy Corridor in west Houston, where more than 91,000 employees work.

But the city's economy is much more diverse than it has been, says Clint Pasche, senior vice president of marketing and communications at the Greater Houston Partnership. Among its most notable recent advancements: a big expansion of the Texas Medical Center, major improvements to the Houston Ship Channel, and a growing Innovation Corridor.

Texas Medical Center

According to the Texas Medical Center, its 37-acre master-planned TMC3 collaborative research campus represents Houston's greatest opportunity to expand and diversify its economy. Photo courtesy Texas Medical Center.

The world's largest medical complex and the eighth largest business district in the country, the TMC can be traced to the 1940s and $19 million donated to the MD Anderson Foundation, created by banker and cotton trader Monroe D. Anderson.

TMC handles 10 million patient visits a year. Its Texas Children's Hospital is the world's largest children's hospital and M.D. Anderson Cancer Center is the world's largest cancer hospital. "TMC transformed what Houston is and who it attracts," says Kyle Shelton, deputy director of the Kinder Institute for Urban Research at Rice University.

Now the medical center is in the midst of a major development project to establish itself as an emerging destination for global health research, competing with Boston and San Francisco. In the center of TMC, the planned TMC3 Collaborative Campus will create five million square feet of research, retail, commercial, hotel, conference, and open space over 37 acres. It's expected to drive $5.2 billion into the Houston economy, creating nearly 26,000 jobs, says Abbey Roberson, AICP, VP of planning at TMC. The project is expected to break ground in early 2020.

TMC3 will better allow for scientific collaborations and partnerships across disciplines, foster innovation, and promote public-private partnerships. Roberson believes it will attract some of the brightest minds to Houston, and that's more important than ever as the city competes for global talent.

A major challenge — with 120,000 employees, 40,000 students, more than 200,000 visitors a day, and just 58,000 parking spaces — is mobility, Roberson says. TMC is looking into transit solutions that could address its planned growth, including transportation network companies, connected autonomous vehicles, and an expanded light rail and bus service, and is working with the Texas Department of Transportation and Metropolitan Transit Authority of Harris County on solutions.

"There are a lot of different conversations being had about mobility because our city is very auto-oriented," she says. "How do we evolve? It's a shift."

Houston Ship Channel

The Port of Houston has a major effort underway to deepen and widen the Houston Ship Channel to accommodate larger shipping vessels and allow for two-way traffic. Photo courtesy Port of Houston Authority.

The 50-mile, 535-foot-wide Houston ship channel represents almost a quarter of Texas's GDP — 75 percent of all U.S. military-grade fuel travels through it. Few industries were on its banks when it opened in 1914, but now, as one of the world's busiest waterways with 20,000 ship moves each year, it's a large and vibrant part of the regional economy.

The channel and surrounding area also support the world's second-largest petrochemical complex.

"We're at the nexus of thousands of shipper supply chains," says Rich Byrnes, chief infrastructure officer at the Port of Houston.

A 2018 study by Martin Associates reports that Houston Ship Channel-related businesses contribute more than 1.3 million jobs throughout the state, up 15 percent compared to a 2014 study. Activity helps generate more than $339 billion in economic value statewide. Additionally, almost $5.7 billion in state and local tax revenues are generated by business activities related to the port.

In 2015, Port Houston implemented a strategic plan mapping out a new vision, core values, and mission to drive regional prosperity. A $1 billion effort is now underway to widen and deepen the channel amid surging energy exports and profits and as container and bulk cargo ships have gotten larger.

With 152 million consumers within 1,000 miles, the port is "America's distribution hub, not Houston's distribution hub," says Byrnes.

The project could take upward of 20 years from concept to completion. But "the economy is booming now, we can't wait," says Byrnes. So port officials are in talks with industry partners — oil and gas companies who are major users of the port — to move the project along. Companies like ExxonMobil and Shell have made verbal commitments to fund part of the ship channel improvements, Byrnes says.

Top of mind for Byrnes is how innovation can help freight move through the network more efficiently. He's looking at new modes of transportation like a freight shuttle system that takes trucks off the roads, moving them to an inland location. The shuttle would eliminate the busiest 15 miles of trucks' trips and emissions since it's electrically driven; it would also increase roadway safety and decrease the need for road repairs.

Texas and Florida lead the U.S. in trucking industry congestion costs. "Texas is building roads as fast as possible," says Byrnes, but with rapid population growth, it's hard to stay ahead of the curve.

The Innovation District

Houston's four-mile Innovation Corridor will be anchored by the Ion Innovation Hub, centrally located on the site of the former Sears department store in Midtown, within three miles of the central business district, the Texas Medical Center, and several universities. Photo courtesy Rice University.

In 2018, after Houston failed to make Amazon's headquarters short list, Rice Management Company — responsible for the stewardship of a $6.3 billion endowment fund and Rice University's $962 million debt — took action.

It owned a plot of land in Midtown that housed a Sears department store. Sears wanted to downsize, so Rice took over the lease and is revamping the building into a hub for innovation and entrepreneurship called The Ion. Midtown is a growing neighborhood with access to public transportation, the medical center, and downtown. "Rice wanted to catalyze economic activity beyond energy and medicine," says Ryan LeVasseur, managing director of direct real estate at Rice Management Company.

The 300,000-square-foot hub will anchor Houston's Innovation Corridor, a four-mile stretch running through the heart of Houston from downtown south to the Medical Center. It will house incubators, accelerators, and startup development organizations, including Station Houston.

Rice Management since acquired additional land, bringing the total acreage to be developed into an Innovation District up to 16. Eventually, up to five million square feet of commercial, multifamily residential, and retail space will be built on the land.

LeVasseur says the land is unique given its larger block size, 2.5 acres versus Houston's standard block size of closer to one acre. That makes it easier to create open spaces on all sides of the building, he says, a project priority. Rice is partnering with the Midtown Management District on community spaces.

Innovation-focused nonprofits and accelerators like Houston Exponential and MassChallenge, which are working to foster the startup scene, will be key, Clint Pasche says. In recent years, universities have also stepped up. The University of Houston opened a new business incubator — The UH Innovation Center and Labs — in 2016, while Rice has the Liu Idea Lab for Innovation and Entrepreneurship.

Moving forward

Building on Houston's strengths — energy and medicine — while filling in the gaps will be integral to future economic growth, says Rice's Kyle Shelton, adding that finding a niche and innovating are critical. At the same time, he says, any future growth must proceed with climate change in mind.

Pasche agrees, saying there's been a marked change in attitudes in Houston on climate change over the last 12 to 18 months. "Companies know we have a responsibility to figure this out," he says. "The good news is, we are positioned to do so."

Among Plan Houston's strategies is one to protect and conserve local resources, including reducing consumption, encouraging green building practices, and dedicating resources to resilient man-made and natural systems that protect citizens and assets from disasters and other risks.

Even oil and gas companies have begun to step up to the plate. In August, Exxon Mobil — which has a 10,000-employee campus just north of Houston — announced it would boost its research in carbon capture technology. The company entered into an agreement with a Berkeley, California, startup to investigate how to scale up its specialty carbon dioxide removal technology.

Shelton says economic development with climate change in mind is especially important after multiple major storms caused widespread, destructive flooding in Houston the last few years. Additional flooding without adequate planning could impact companies' decisions to remain in Houston, he adds.

"Places hit repeatedly by the effects of climate change are going to have to be able to say 'here's how we're going to address these challenges,'" Shelton says. For Houston, "it's a front-and-center question."

Deborah Lynn Blumberg is a Houston-based freelance writer specializing in health and wellness and business and finance.