Houston takes top spot in FT-Nikkei rankings by moving beyond oil

Ever since crude first gushed from Spindletop Hill in 1901, Houston has been an oil town — the epicentre of America’s oil and gas industry, its fortunes rising and falling with those of the sector.

Today, though, America’s fourth-largest city is rapidly expanding beyond the industry on which it was built. Not only has it become a centre for green energy innovation, but other sectors, including medical technology and aerospace, now call the Texas city home.

“When I grew up in this city, it was oil and gas,” says Sylvester Turner, the city’s mayor. “When I went to law school at Harvard and told people I was from Houston, Texas, many students . . . thought I had an oil well in my backyard.”

Now, Houston’s transformation to an international hub for a growing number of multinational corporations — backed by one of the nation’s busiest international airports and global shipping ports — has helped propel the city to the top of the second annual FT-Nikkei Investing in America rankings.

“We are still an energy-focused town,” notes Turner. “But we are that and so much more.”

Texas dominated the 2023 rankings, with five cities in the Dallas Fort Worth metropolitan area — Dallas, Plano, Fort Worth, Irving and Arlington — all claiming spots in FT-Nikkei top 20, as did Austin, the state capital.

The Lone Star State is known for its pro-business outlook. Alongside a host of incentive programmes, Texas does not levy a state tax on corporate or personal income. Its cost of living is also significantly lower than other parts of the country.

That has attracted both businesses and people. Since 2000, the population of Texas has grown by more than 9mn, well ahead of any other state. The state’s gross domestic product has roughly tripled over that period to $2.36tn. If it were a country, Texas would boast the eighth-biggest economy in the world — ahead of Italy.

But, while Austin’s reputation as a tech hub and Dallas’s financial services pedigree are well established, Houston has often flown below the radar.

The city prides itself on its lack of frills and a drive to get deals done. Ever since the dredging of the Houston ship channel, in 1914, paved the way for it to go from a forgotten inland town to a vast metropolis and commercial hub, the city has clung to an Old West ethos as a place where hardworking people make their own luck.

“God did not intend a major city to be built in this mosquito-infested, flat, ugly, sort of nothingness world that Houston inhabited,” says Stephen Klineberg, founding director of the Kinder Institute for Urban Research and author of the book Prophetic City: Houston on the Cusp of a Changing America. “There’s an ideology in Houston and a belief that ‘we can make this work’.”

That reputation has drawn in businesses both big and small. The Houston area is home to 26 Fortune 500 companies, making it the third-ranking metro area in the country.

“People came here because they saw it as a good location for building business and commercial activity,” says Bob Harvey, president of the Greater Houston Partnership, a chamber of commerce. “That was true in the 19th century and it’s true today.”

Companies such as ExxonMobil — which moved its headquarters to the city this year — ConocoPhillips and Occidental Petroleum helped Houston earn the title of the “energy capital of the world”. However, city leaders want to see it become the “energy transition capital of the world”.

“We did oil and gas the way Detroit did cars, the way Seattle did aeroplanes,” says Klineberg. “That was the identity. Now, it’s in transition and trying to remain a leader in a very different kind of mix of energy systems.”

Of Houston’s 26 Fortune 500 companies, most are in hydrocarbons. But, as growth in the industry wanes from the shale boom frenzy — with minimal new company formation — and warnings grow over the longevity of fossil fuel demand, the city is adapting.

The transition to green energy is helped by the knowhow that made it a centre for oil and gas. Houston boasts unrivalled technical expertise in energy, including manufacturing, engineering, trading markets, and complex industrial project management. It also has a robust energy infrastructure and the nation’s biggest port by tonnage.

“We’re clear in Houston that if we’re going to continue to have prosperity — to the degree to define prosperity as job growth and wealth creation — it’s going to need to come from places other than the incumbent energy business,” says Bobby Tudor, chief executive of Artemis Energy Partners and a leading corporate voice in the city.

McKinsey, the consultancy, has estimated that the city could grow its share of energy transition capital from about 6 per cent in 2020 to as much as 15 per cent by 2040, reaching $250bn annually.

“Increasingly, people working in the energy transition space are saying, you know, actually where the action is, is here,” says Tudor. “It’s not really San Francisco. It’s not really Boston. It’s Houston, Texas.”

This year alone, Konec, a South Korean maker of electric vehicle parts, announced plans for a new $80mn plant in the city; Sumika, a subsidiary of Japan’s Sumitomo that makes semiconductor materials, unveiled a $250mn plant; and Tinci Materials of China, which makes electrolyte blends for batteries, said it would spend $180mn on a new facility.

Houston has had a more complicated record of attracting investment outside the energy sector, however. In 2018, it failed to make Amazon’s shortlist of 20 cities that the tech group was considering for a second headquarters.

But there have been notable successes in the tech sector. Hewlett Packard Enterprise moved its headquarters from its historic home in Silicon Valley to Houston in 2022.

The city is also home to the Texas Medical Center, the world’s biggest medical complex, and has positioned itself as a leader in healthcare innovation. The TMC Helix Park opened in late October, a vast new biomedical research hub aimed at turbocharging the commercialisation of research. The project is slated to create more than 20,000 jobs and generate as much as $5.4bn in annual economic impact.

It is an example, says Andy Icken, the city’s chief development officer, of an explosion of innovation centres in the city spanning everything from climate tech to med tech.

Houston is also returning to its 20th-century technological roots. Associated with the US space programme since the Apollo missions of the 1960s, the city once again has a thriving hub of aerospace innovation. Houston Spaceport has positioned the city to be at the forefront of commercial space exploration.

Intuitive Machines, a company that was started in 2013 by ex-Nasa scientists, expects to land the first commercial spacecraft on the moon in January, in what it hopes will be a kick-start for the lunar economy akin to the Spindletop oil rush. Bank of America has estimated that the industry could be worth as much as $1.1tn by the end of the decade.

“The history and heritage from the Apollo programme, and the centring of astronauts for human space flight here, has really given the city a birthright to be Space City,” says Stephen Altemus, chief executive of Intuitive.

“We’re starting to . . . get back to our original identity — and away from being just an energy city,” he adds. “It really is an international city. And it’s where people want to come do business in space.”