HOUSTON—With an unforgettable year now in the rear-view mirror, many key players are weighing in on what is in store for the 2018 Houston commercial real estate industry. In this exclusive, Kevin Roberts, southwest president of Transwestern, is one of those offering insight into the year ahead.

GlobeSt.com: What is the outlook for Houston in 2018?

Roberts: Our outlook for Houston is bullish for most product types. Retail and industrial are the strongest while multifamily and office are working through supply issues.

Retail will continue to perform well, especially grocery anchored-centers and lifestyle centers in urban and suburban areas. The draw of mixed use, entertainment/hospitality and experiential shopping options is much greater than traditional retail and those developments will over-achieve in 2018.

Multifamily was recovering some of its oversupply prior to Harvey and received a boost after Harvey. The consensus is that Harvey may have cut six to nine months out of the multifamily recovery period. 2018 will see a continued recovery of occupancy and rental rates.

Industrial will remain the highest-performing property sector in 2018. The expanded port, strong retail sales, explosion of e-commerce, demand from the trades for a post-Harvey rebuilding period and the continued growth of Houston will continue drive rates and additional speculative development in this sector.

Office will continue its slow recovery in most areas. For there to be a significant absorption of office space in Houston in 2018, there will need to be greater space demand from the energy and other office-using sectors. We are undoubtedly off the bottom of the current cycle, but the recovery will be slow and steady as there are still mergers and acquisitions that may impact the sector in Houston. Office tenants will benefit from a race of institutional investors continuing to invest capital in tenant amenities and building redevelopments to create a sense of community in their assets. Re-imagined public spaces, greater connectivity, co-working opportunities and convenience amenities are becoming must-haves in order to compete.

GlobeSt.com: What are you seeing in your crystal ball in terms of a slowdown?

Roberts: Our economic expansion has been slow and steady, and we believe there is still room to run. We are very much impacted by the national economy, so the health of the country must continue.

GlobeSt.com: How much do the remnants of Harvey factor into the CRE landscape?

Roberts: Harvey was an epic event that impacted residential significantly more than the commercial sector. Less than 1% of the rentable building area of office space was impacted–though if you were impacted, it was significant. Most businesses were open for business in three to four days once mobility improved. Retail and industrial saw a surge in demand as the trades needed space to house their recovery efforts and Houstonians needed retailers to replace lost goods. Multifamily owners leased 11,000 units or 1.5% of the market in the five weeks after Harvey.

I believe the lasting effects may be the expense associated with additional regulations on residential and commercial buildings in flood plains or areas that could see a major flooding event again. The long-term impact on housing values in areas that flooded may be the costliest remnant of this storm. Homes that did not flood could certainly have their values impacted because of proximity to neighborhoods known to flood.

GlobeSt.com: What other trends are anticipated to have an impact in the New Year?

Roberts: In the next several years, you have to look for and embrace technology and generational change in the commercial real estate sector. Recruiting and retaining talent in an office environment will require amenity-rich flexible space, which allows internal mobility and several working options. Office buildings will have more curated experiences with a hospitality feel. Building services from food to workspace reservation will be available on a mobile device accessible by each tenant.

Developers are already constructing parking garages to allow for adaptive reuse as the autonomous vehicle and the continued evolution of transportation as a service will have an impact on parking demand. In the short term, look for owners to continue to subsidize first mile or last mile Uber or Lyft costs to minimize parking demand.

Instant Insights /

What's in Store for Houston CRE in 2018?

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