Mid-Year 2017 | Houston Healthcare | Research & Forecast Report

Houston’s aging population creates demand for healthcare professionals and the properties they occupy

HEALTHCARE TRENDS

Commentary by Beth Young

When writing about the healthcare-property market in the greater Houston area, the first thing we must acknowledge is that Houston is home to the Texas Medical Center (“TMC”), the world’s largest medical center and the eighth largest business district in the U.S. With that comes 50 million developed square feet in the TMC alone, plus additional hospitals and outpatient centers spread throughout the far-reaching suburbs that cater to nearly seven million people (as of last year). Currently the TMC is reporting $3 billion in construction projects underway within their boundaries. Additional information about TMC can be found on pages 3-4 of this report. The following information focuses on a few of the high points in the suburbs of Houston’s healthcareproperty market.

SUBLEASE AND DIRECT LEASE SPACE

Houston currently has a near-record amount of sublease office space available, and the sub-type of healthcare properties (including office buildings with some medical suites) has not escaped that trend. Vacant sublease space in healthcare buildings has increased from 98,647 square feet to 113,217 square feet since the first quarter of 2017. However, the amount that is available and yet still occupied, equals almost twice as much sublease space. Total medical office vacancy (including direct space) has increased from 10.9% at the end of 2016 to 12% according to CoStar, a national database of commercial real estate.

Interestingly, the gross lease rate for direct medical-office space and sublease space for medical office property is within two cents of each other across the city, at an average of $25.28 per square foot per year. Knowing landlords can offer multiple incentives (free rent, construction allowance, parking options, flexible terms, etc.) to prospects, medical tenants who need to sublease their current office space may want to consider lowering the asking rent to compete with landlords for available prospects.

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