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2021 | Mid-Year Houston Healthcare Market Report

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2021_MidYear_Healthcare_HERO_1536x1040

Key Takeaways

  • Vacancy increased annually, but dropped quarterly
  • Year-to-date absorption is positive
  • Construction and deliveries are down year over year
  • Rental rates rose quarterly and annually
2021_MidYear_Healthcare_VacancyRate 2021_MidYear_Healthcare_NetAbsorption 
 2021_MidYear_Healthcare_UnderConstruction  2021_MidYear_Healthcare_LeaseRate

 

Houston Highlights

Houston’s medical office building (MOB) market posted 209,900 square feet of positive net absorption in Q2 2021, bringing the year-to-date total to 137,800 square feet. The vacancy rate rose over the year from 11.3% to 12.1%. Houston’s MOB inventory increased slightly with 126,300 square feet of new inventory added in the first half of 2021 and there is 1.9 million SF of MOB space under construction. The average asking NNN rental rate rose annually from $22.22 per SF to $22.68 per SF. Transaction volume decreased on an annual and quarterly basis. According to our data provider Revista, 2021 year-to-date transaction volume is just over $96.4 million and the average CAP rate is 6.65%.

Market Indicators

2021_MidYear_Healthcare_MarketIndicators

Historic Comparison- MOB only

 2021_MidYear_Healthcare_HistoricComparison

 

Market Fundamentals

2021_MidYear_Healthcare_MarketFundamentals

The forecast in the graph above is based on a trailing eight quarter average.

The statistical historic comparison table to the left reflects medical office buildings (MOB) only.

The lease rates are an average of published available rates. Not all properties listed publish an asking rate. Our healthcare expertsreport actual deal rates trend slightly higher.

Executive Summary

Commentary by Coy Davidson | Senior Vice President

The Healthcare market is very fluid in 2021 after weathering the brunt of the COVID-19 pandemic in 2020. The Houston healthcare real estate sector is supported by strong fundamentals, including long-term leases, specialized buildouts and stable occupancy, all of which are bolstered by growing demand for healthcare services and an expanding population.

Physician Office Employment is almost fully recovered to pre-pandemic levels and overall hospital metrics steadily improved in recent months as COVID-19 cases fell. Still, rising cases of the Delta variant make the remainder of the year less predictable.

As healthcare tenants return to the marketplace, leasing activity in the first half of 2021 was primarily driven by hospital systems and large physician groups. According to Revista, rent growth in the Houston medical office sector is 2.1% year over year at the end of the second quarter.

Construction starts that were put on hold during the onset of the COVID-19 pandemic have restarted. As a result, Houston ranks second nationally, trailing only Chicago in terms of new medical office construction.

The Museo Medical Office Building, a ten-story MOB in the Museum District topped out in April. Houston Methodist completed a new 150,000 square feet MOB at its Clear Lake Campus and announced plans to build its ninth hospital campus in Cypress.

Construction is nearing completion on a nine-story expansion to Memorial Hermann The Woodlands Medical Center.

Current and planned healthcare-related construction in the Texas Medical Center (TMC) is robust.

Baylor St. Luke’s Medical Center celebrated the official topping out of the new 12-story, $426 million O’Quinn Medical Tower in late June.

Texas Children’s Hospital announced a $201 million expansion of their Texas Children’s Pavilion for Women in the TMC. Medistar Corp. and Healthcare Trust of America recently broke ground on Horizon Tower, a 30-story life sciences and medical building in the TMC.

Commercial real estate investors are increasingly turning to the medical office sector as a desirable asset class. Investor demand for quality MOB offerings remains high. However, sales volumes in Houston have been somewhat sluggish in the first half of 2021. Ten (10) medical office buildings totaling 380,815 square feet traded in the Houston metro during the first half of 2021, significantly less than historical volumes primarily due to the lack of quality offerings on the market in Houston.

Life Sciences

Q1 2021

Biotechnology and the life science industry continue to expand in the Houston region with more than 100 institutions and companies attracting an increasing level of research and development funding annually.

The Texas Medical Center (TMC) has broken ground on TMC3, a new multi-institution research campus that will foster collaboration amid a culture of competition. The 37-acre expansion is expected to include about 1.5 million square feet of shared research space among the founding institutions which include TMC, Baylor College of Medicine, Texas A&M University Health Science Center and the University of Texas M.D. Anderson Cancer Center. The new research campus is expected to be completed in 2022 and is projected to create 30,000 jobs and have a $5.2 billion impact on the city of Houston.

The state-funded Cancer Prevention and Research Institute of Texas (CPRIT) has invested more than $1.6 billion through more than 1,056 grants since 2010. CPRIT funding has attracted nearly 100 cancer researchers and their labs to Texas and prompted $910 million in follow-on investment in CPRIT supported companies. Leading research efforts in the area represent established and emerging industries, including nanotechnology, pharmaceuticals, nutraceuticals, genetics/genomics, biodefense and infectious diseases, stem cell research and oncology.

Rice University’s Ion Innovation Hub has broken ground halfway between downtown Houston and the heart of the TMC in Houston’s South Main Innovation District. Rice University’s new 300,000 square feet Ion building is a non-profit innovation hub developed out of a multi-story vacant Sears Department Store. The building is designed to bridge the gap between underrepresented entrepreneurs and the resources they need to build profitable, high-growth companies. The project is scheduled for completion in 2021.

Top 3 Companies in the Market

2021_MidYear_Healthcare_Top3Companies

Houston's Texas Medical Center

The Texas Medical Center (TMC) – the world’s largest medicalcenter – represents one of Houston’s major economic drivers andcore industries with an estimated regional annual economic impactof $25 billion. TMC is also one of Houston’s largest employers with106,000 employees, including physicians, scientists, researchersand other advanced degree professionals in the life sciences. Theinternationally-renowned 1,345-acre TMC is the world’s largestmedical complex of member institutions, including leading medical,academic and research institutions, all of which are non-profit and dedicated to the highest standards of research, education and patientpreventive care. Over 50,000 students, including more than 20,000international students, are affiliated with TMC.

TMC Stats

50 million

developed square feet

$3 billion

in construction projects underway

8th largest

business district in the U.S.

180,000+

annual surgeries

10 million

patient encounters per year

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2021 | Mid-Year Houston Healthcare Market Report

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Related Experts

Lisa Bridges

Director of Market Research

Houston

Lisa joined Colliers in 2010 as Director of Market Research and has 37 years of commercial real estate experience. Lisa initiates proactive market research projects to further the business goals of the company. She writes and prepares 29 market reports annually, including quarterly reports on Houston's retail, office, industrial and healthcare properties.  Further, she prepares statistical ownership reports for various clients as well as an annual Houston Economic Overview. Lisa also creates PowerPoint market presentations, trade journal articles, and other marketing materials supporting the company's business endeavors. She works with senior management in planning the company's marketing strategy and public relations support for local and national conferences, luncheon meetings, recruitment programs, and special events.  Lisa works closely with the company's brokers to develop effective custom market research material specific to existing and potential clients.

Lisa serves on the Colliers Editorial Board, the Colliers U.S. Research Council, and is a recipient of the Colliers Researcher of the Year Award.

Lisa earned the Commercial Property Research Certification (CPRC) from Colliers University.  CPRC is the first and only accreditation for commercial real estate research professionals. It offers a professional development path to increase strategic and tactical expertise in marketing/research, knowledge of the industry and capabilities with commercial real estate tools.

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Coy Davidson

Senior Vice President

Houston

Coy Davidson has more than 30 years of experience in commercial real estate specializing in corporate real estate services, tenant representation, office leasing and investment sales.  Mr. Davidson joined Colliers in June 2000 as Vice President in the Office Services Group.  Prior to joining Colliers, Mr. Davidson served eleven years with two local commercial real estate brokerage firms.

Specializing primarily in office properties and healthcare properties, Mr. Davidson has completed over seven million square feet of lease and sales transactions and the brokerage of more than 1,000 acres of land development sites throughout the Greater Houston area and has assisted clients in multiple cities throughout the United States. 

Mr. Davidson has vast experience with Healthcare related entities including major hospital systems and private physicians in the Texas Medical Center and throughout Greater Houston and is a member of Colliers International National Healthcare Service Group. His focus on the healthcare sector has resulted in more than $250 million in healthcare real estate related transactions.

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