On November 9 the world felt a major shift when Donald Trump was declared the winner of the U.S. presidential election. His victory was unexpected by many, since most major polls had predicted a Hillary Clinton win. The election of a political outsider to the nation’s highest office raises important questions: what does this mean for the country’s direction, and how might it affect Houston’s challenged real estate market?
To explore those questions, Realty News Report interviewed Charles Herder, a principal shareholder and co-chairman of Colliers International in Houston. Herder has combined an engineering background with strong financial analysis skills to build a 30-year career in commercial real estate. Colliers today is one of Houston’s largest real estate firms, with offices in Houston, Sugar Land and The Woodlands.
Will the new administration affect Houston’s real estate market?
Herder says easing regulatory burdens and reinvigorating free-market policies could benefit real estate. He points to the potential dismantling of aspects of the Dodd-Frank financial regulations as an example. Since the financial crisis, increased regulatory compliance has pressured institutions such as GE Capital and has particularly burdened smaller banks, which are a key source of financing for entrepreneurial real estate projects. Rolling back certain executive orders or written regulations could stimulate economic activity and lending, providing a tailwind to commercial real estate.
At the same time, he emphasizes that the United States has long-standing economic strengths grounded in democracy and capitalism, and those fundamentals will not be easily derailed by any single presidential term. Broad economic resilience should help limit the longer-term market impact of political shifts.
Outlook for Houston in 2017
Herder is optimistic about 2017. He notes that a significant oil discovery in the Midland/Permian Basin will spur more drilling and production in that region, supporting stabilization in the energy sector. Beyond oil, global demand for natural gas appears to be rising, and U.S. LNG exports are expanding worldwide. Houston, with its concentration of energy infrastructure and expertise, is well-positioned to benefit from that trend.
Investor sentiment toward Houston
Investor interest in Houston remains tied closely to perceptions of the energy sector’s health. While a weak energy outlook can make some out-of-town capital hesitant, it does not eliminate investment entirely. Houston’s advantages—population diversity, entrepreneurial activity and a strong free-market orientation—continue to attract investors who see long-term opportunity in the region.
State of the Houston office market
Like many markets, Houston has faced rising office vacancy rates and abundant sublease availability. Herder believes the worst of the downturn likely occurred in 2016, but he cautions that the large volume of sublease space will prevent a rapid rebalancing of supply and demand. In the near term, however, the market will see tenant activity that reshapes occupancy patterns: moves into higher-quality space, lease restructurings such as “blend and extend,” and other arbitrage strategies will be common as companies reposition to optimize space and costs.
Overall, Herder views the combination of regulatory shifts, energy market developments and Houston’s structural strengths as factors that can support recovery and renewed investor interest heading into 2017.
Dec. 4, 2016 Realty News Report Copyright 2016