Houston healthcare real estate market continues to expand

1. Houston healthcare real estate market continues
to expand
Research &
Forecast Report
HOUSTON | HEALTHCARE
Year-End 2018
In the business world, interest in healthcare is at an all-time high.
The medical office sector is the fastest-growing sector in the U.S.
commercial real estate.
Although major REIT’s recently seemed to apply the brakes on
acquiring more of the sector, primarily due to concerns about
interest rates, the pool of private buyers continues to grow for one
of the nation’s most stable asset classes, quality medical office
buildings. Many buyers have observed the economy’s expansion
since 2009 and are looking for safe investments in case things
change. Few sectors compare to healthcare’s record when the
economy takes a downturn. Records show medical office properties
kept an average occupancy level of 90 percent or better, even in the
worst years.
We have plenty of reasons to expect buyer’s interest in healthcare
to continue. Although the industry is under constant pressure to
control costs, improve care and provide more convenience for
patients, the local industry benefits from 100,000 births and 30,000
adults turning 65 each year. In addition, the region adds population
the size of some mid-size towns every year through net migration.
Those events start a chain reaction of medical care needs.
Houston’s impressive health systems continue to push the
boundaries of the greater metro area by expanding in submarkets
that service not only Houston suburbs, but nearby rural counties
that have little to no medical providers. In Texas, 27 counties
have no primary care physicians, and only 16 have one. Routine
medical care in those areas is often more than 60 miles away, and
specialty care is typically 200 miles away. The ongoing expansion
and development in Houston suburbs by systems including UTMB
Health, HCA, MD Anderson, Houston Methodist, Memorial Hermann,
Texas Children’s, CHI St. Luke’s and others will provide needed
medical support for not-too-distant neighbors. The Houston
Partnership is forecasting an additional 9,000 jobs will be added in
the Houston healthcare sector in 2019.
Lisa Bridges Director of Market Research | Houston
Healthcare Trends Commentary by Beth H. Young, CCIM, LEED AP
Summary Statistics
Houston Medical Office Market 2H 2017 1H 2018 2H 2018
Vacancy Rate 11.8% 12.1% 12.3%
Net Absorption 374,682 57,949 65,433
New Construction 341,334 191,525 186,385
Under Construction* 466,709 497,822 363,721
*Under Construction excludes hospitals, but includes the medical office buildings within the hospital
complex
Asking Rents
Per Square Foot Per Year
Average $24.92 $25.20 $25.06
Class A $28.57 $28.83 $28.66
Class B $24.30 $24.56 $24.15
.
Market Indicators
Relative to prior period
Annual
Change
Semi-Annual
Change
Semi-Annual
Forecast*
VACANCY
NET ABSORPTION
NEW CONSTRUCTION
UNDER CONSTRUCTION
*Projected

2. $0
$200
$400
$600
$800
$1,000
$1,200
Millions
Rolling 4-Quarter Volume Quarterly Volume
$0
$100
$200
$300
$400
$500
$600
U.S. Houston
Second Half 2018
NO. OF PROPERTIES: 17
TOTAL SF: 1.1M
MEDIAN $/SF: $231
MEDIAN CAP RATE: 7.1%
Sales By Total ($)
Average Price Per SF
Sales Activity
Source: Real Capital Analytics
2 Houston Research & Forecast Report | Year-End 2018 | Healthcare | Colliers International
Hospital Expansions
Some of the notable hospital expansions in the second half of 2018
include the following:
»» Houston Methodist expanded their presence in the Texas
Medical Center by opening a 22-story, 954,000 square foot,
$700 million Paula and Joseph C. “Rusty” Walter III Tower. It
features 366 patient beds, 19 OR’s plus four hybrid OR’s.
»» Memorial Hermann topped out its new tower in the Texas
Medical Center that will have 160 patient beds, 24 OR’s, 16
additional emergency center bays, more than 600 new parking
spaces and a 335-seat café. It will be completed in 2020.
»» Memorial Hermann Northeast in Humble opened a $70 million,
123,000 square-foot, five-story patient tower and a new four-
story, 100,000 square-foot professional office building.
»» The second phase of Legacy Tower at Texas Children’s
Hospital opened and houses Texas Children’s Heart Center®,
ranked #1 in the nation by U.S. News & World Report for
cardiology and heart surgery.
»» The University of Texas MD Anderson Cancer Center opened a
200,000 square foot, four-story facility in League City (south
of Clear Lake City) that houses new and expanded cancer care
services and a first-of-its-kind clinical collaboration with The
University of Texas Medical Branch (UTMB Health).
»» Baylor College of Medicine’s Joseph Barnhart Department
of Orthopedic Surgery has opened a new clinic at 6363 San
Felipe near Winrock Road.
»» HCA Houston Healthcare Southeast opened its new center for
neurosciences and orthopedics at 4000 Spencer Highway,
in Pasadena. A 20-bed, 15,800-square-foot center is a new
build-out on the hospital’s fifth floor and designed to meet the
needs of neuroscience and orthopedic postoperative patients.
The following includes projects currently under construction,
delivering in 2019/2020:
»» Memorial Hermann’s Susan and Fayez Sarofim Pavilion (in the
TMC) which will house one of Houston’s two Level I Trauma
Centers and the only comprehensive burn center in the city,
plus 160 additional beds, five more operating rooms, a café and
more.
»» M.D. Anderson - a 208,000 square feet (SF) facility in The
Woodlands
»» The University of Texas Medical Branch (UTMB) John Sealy
Hospital in Galveston - 200,000 SF.
»» UTMB League City (Clear Lake submarket), 300,000 SF at
2240 S. Gulf Freeway - five additional levels and 60 hospital
beds, bringing the total up to 97 beds. The parking garage,
adding 740 spots, opened in early July.

3. Job Growth & Unemployment
(not seasonally adjusted)
UNEMPLOYMENT 12/17 12/18
HOUSTON 3.5% 3.9%
TEXAS 3.5% 3.6%
U.S. 3.5% 3.7%
JOB GROWTH
Annual
Change
# of Jobs
Added
HOUSTON 3.5% 108.3K
TEXAS 3.1% 382.9K
U.S. 1.8% 2.7M
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
$24.00
$25.00
$26.00
$27.00
$28.00
$29.00
$30.00
Class A Rents Class A Vacancy
*Vacancy percentage includes direct and sublease space.
10.00%
11.00%
12.00%
13.00%
14.00%
$20.00
$22.00
$24.00
$26.00
Class B Rents Class B Vacancy
*Vacancy percentage includes direct and sublease space.
Medical Office
CLASS A RENTS AND VACANCY
CLASS B RENTS AND VACANCY
3 Houston Research & Forecast Report | Year-End 2018 | Healthcare | Colliers International3
»» UTMB has leased the former Bay Area Regional Hospital, a
373,000-SF facility at 200 Blossom Street in Webster (Clear Lake
submarket)
»» Kelsey-Seybold - a 55,000 square SF in Kingwood
»» Houston Methodist – the San Jacinto Hospital in Baytown, 60,000
SF.
»» Houston Methodist Sugar Land, 138,000 SF.
»» Memorial Hermann - 40,000 SF in the Cypress Medical Center.
»» Harris Health is expanding and redesigning Houston’s safety
net and Level I trauma center at Ben Taub Hospital in the Texas
Medical Center, including nine more OR’s.
»» Although Memorial Hermann Hospital embarked on a $650 million
renovation and expansion in 2014, it will deliver a campus that has
grown to 3.84 million square feet in 2019. The Memorial Hermann
system has more than 20,000 employees advancing healthcare
in Southeast Texas and the Greater Houston community with
13 hospitals including four in the Texas Medical Center, eight
suburban hospitals and a second rehabilitation hospital in Katy,
TX.
As the Houston population grows, more medical office (MOB) space is
also needed. The following is a small sample of the approximately half
million square feet (SF) of MOB space under construction:
»» Memorial Hermann Convenient Care Center, northeast Houston,
45,000 SF
»» 121 Vision Park medical office in The Woodlands, 58,000 SF
»» Hedwig Place, Katy Freeway – 102,474 SF
»» 1020 Riverwood, Conroe, 50,000 SF
»» 13219 Dotson, Tomball, 30,000 SF
Mergers and Acquisitions
While Healthcare mergers and acquisitions have slowed down since
the first quarter of 2017 due to rising operational and technology
costs, organizations will continue to seek efficiencies of scale through
mergers and acquisitions while creating strong competition in markets.
Texas giants Memorial Hermann Health System and Baylor Scott &
White announced plans to merge on October 1, 2018. By the first week
of February, 2019, it was reported that the talks had ceased.
Notable Acquisitions:
Investors are pouring capital into medical offices and other properties
that serve an aging and growing population. Houston has much in
common with other strong medical communities – there are plenty
of investors for the properties, but few sellers of medical real estate.
This defines a seller’s market. In July 2018, the largest price ever paid
in the U.S. for a medical building was reported by LaSalle Investment
Management when it acquired Memorial Hermann Medical Plaza-Texas
Medical Center, 6400 Fannin Street at $404.7 million ($794/SF).
The 28-story, 510,000-square-foot building is anchored by Memorial
Hermann, the second largest not-for-profit health care provider in
Texas, and is 99 percent occupied.

4. 4 Houston Research & Forecast Report | Year-End 2018 | Healthcare | Colliers International4
Mergers and Acquisitions - continued
Major hospital systems have been in an expansion mode in recent years, targeting doctors,
medical practices and office space. Although the medical field has been consolidating,
healthcare real estate investments have increased as health systems expand the size of their
geographic boundaries, sometimes monetizing properties through sales to outside investors
or operators. HCA Gulf Coast Division became the largest Houston-area health system after
it purchased its 53rd hospital in Texas, the North Cypress Medical Center, and several other
hospitals in the Houston area in the last couple of years.
Additional Acquisitions and Buyers in the second half of 2018:
»» Sienna Professional Plaza at 9201 Sienna Ranch Rad in Missouri City; 9,817 SF, TSM
Ventures
»» Houston Orthopedic Facilities at 17270 Red Oak Drive, 48,100 SF, Catalyst HRE
»» Physicians US Office Portfolio, Catalyst HRE
»» 15487 Pin Oak Drive in Montgomery, 15,759 SF, Jerry David Jr
»» Panther Creek Professional Plaza I & II in The Woodlands, 30,363 SF, Alden Heights
Place LLC
»» Greenhouse Medical Plaza at 2051 Greenhouse Road, 114,414 SF, Transwestern
Investment Group and Austin-based Virtus Real Estate Capital have acquired a 114,413-
SF office building at 2051 S. Greenhouse
»» DaVita Dialysis at 20025 Chasewood Park, 8,018 SF, Renato and Cresencia Payumo
Trust
»» Harris Professional Building at 4600 Fairmont Parkway in Pasadena, 17,636 SF,
Intelligent Investments LLC
»» 2200 Yale, 16,431 SF, Asana Partners
»» 11130 Broadway in Pearland, 12,750 SF, Altus Health System Realty LLC
»» 25510 Interstate 45, 14,904 SF, Moparty Family LP
»» Memorial Hermann 4521 Kingwood Dr, Kingwood, 60,584 SF, Inland Group
»» First Choice Emergency Room, 10815 Kuykendahl Rd, 7,851 SF, Hem California
Properties LLC
»» 8603 FM-518, Pearland, 23,100 SF, Ridgeline Capital Partners
»» 1919 North Loop W, 157,686 SF, Simpkins Group
»» 2411 Fountainview Drive, 54,212 SF, Slosburg Companies
Lease Rates and Occupancy
Houston medical office space grew by almost 187,000 square feet in the second half of 2018.
Two Class A properties added 120,681 square feet to the market, while five Class B properties
increased the market by 65,704 square feet. With the new buildings on the market, direct Class
A lease rates barely flinched – they only dropped by 17 cents, averaging $28.66 per square foot.
Direct Class B rates dropped an average of 41 cents to $24.15 per square foot. Because of the
increase in total square feet in the market, it appears there is slightly more vacancy; but after
taking into consideration the amount of space absorbed, available space including sublease
space has only increased by 1.10 percent.
As the greater Houston area’s population continues to grow, health systems, physicians,
developers, and investors will meet the demands of aging residents along with the needs of a
younger generation. There is a significant amount of development in the pipeline, but it’s just the
beginning for a city like Houston.

5. Texas Medical Center
>> World’s Largest Medical Complex (1,300 Acres)
>> 8th Largest U.S. Business District
>> 50 Million Development Square Feet
>> 54 Member Institutions
>> 106,000 Employees
>> 5,000 Physicians
>> 49,000 Life Science Students
>> 10M Patients Annually
>> 9,200 Patient Beds
>> 180,000+ Annual Surgeries
>> $960 Million in Charity Care
Houston MSA Health Care
>> 136 Hospitals
>> 19,583 Hospital Beds
>> 20,371 Licensed Physicians
>> 335,500 Health Care & Social Assistance Jobs
>> 3.4% Annual Employment Growth
5 Houston Research & Forecast Report | Year-End 2018 | Healthcare | Colliers International
2/12/2019 Houston MSA General and Special Hospitals
https://colliersgis.maps.arcgis.com/home/webmap/print.html 1/1
City of Houston, Texas Parks & Wildlife, Esri, HERE, Garmin, METI/NASA, USGS, EPA, NPS, USDA
Houston MSA General and Special Hospitals
Location of state licensed general hospitals
General and Special
Hospitals
Number of features
> 13
10
7
4
1
Houston Area Hospital Locations
Texas Medical Center Map

6. 66 Houston Research & Forecast Report | Year-End 2018 | Healthcare | Colliers International
Texas Medical Center Update
The Texas Medical Center Corp, the operator of the largest medical center in the world, announced plans for TMC3, a $1.5 billion
expansion. Ground breaking of the collaborative research campus is expected to begin in 2019 with a 2022 estimated completion date,
and involve five founding institutions seeking collaboration between major corporations and research universities. The campus is expected
to create 30,000 new jobs and has an estimated economic impact of 5.2 billion dollars annually.
TMC is home to
the World’s Largest
Children’s Hospital,
Texas Children’s
Hospital & the
World’s Largest
Cancer Hospital,
MD Anderson
Cancer Center.
Texas Medical Center Member Institutions
Baylor College of Medicine Nora’s Home
CHI St. Luke’s Health Prairie View A&M University
Children’s Memorial Hermann Rice University
City of Houston Department of Health and Human Services Ronald McDonald House Houston
Coleman HCC College for Health Services Sabin Vaccine Institute
DePelchin Children’s Center Shriners Hospital for Children – Galveston
Gulf Coast Regional Blood Center Shriners Hospital for Children – Houston
Harris County Institute of Forensic Sciences St. Dominic Village
Harris County Medical Society Texas Children’s Hospital - Largest U.S. Children’s Hospital
Harris County Public Health and Environmental Services Texas Heart Institute
Harris Health System Texas Medical Center Hospital Laundry Cooperative Association
Health Science Center Texas A&M University Texas Medical Center YMCA
Houston Academy of Medicine Texas Southern University
Houston Hospice Texas Women’s University
Houston Methodist The Health Museum: John P. McGovern Museum of Health and Medical Science
Institute for Spirituality and Health The Texas Medical Center Library
LIfeGift Thermal Energy Corporation (TECO)
MD Anderson Cancer Center - World’s Largest Cancer Hospital TIRR Memorial Hermann
Memorial Hermann University of Houston
Menninger Clinic University of St. Thomas
Michael E. Debakey High School for Health Professions UT Health
Michael E. Debakey Veterans Affairs Medical Center UTMB Health

7. 7 North American Research & Forecast Report | 2014 | Office Market Outlook | Colliers International
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7 North American Research & Forecast Report | 2014 | Office Market Outlook | Colliers International
Copyright © 2019 Colliers International.
The information contained herein has been obtained from sources deemed reliable. While
every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No
responsibility is assumed for any inaccuracies. Readers are encouraged to consult their
professional advisors prior to acting on any of the material contained in this report.
Colliers International | Houston
1233 West Loop South, Suite 900
Houston, Texas 77027
+1 713 222 2111
colliers.com/houstonhealthcareservices
Class A (26%) Class B (58%) Class C (16%)
Second Half 2018 Houston Medical Office
10.5M SF
22.9M SF
FOR MORE INFORMATION
Lisa Bridges CPRC
Director of Market Research | Houston
+1 713 830 2125
lisa.bridges@colliers.com
CONTRIBUTOR
Beth H. Young, CCIM, LEED AP
Senior Vice President | Houston
+1 713 830 2166
beth.young@colliers.com
0.4M SF
6.5M SF
Houston’s healthcare and social
assistance job growth increased in the
second half of 2018 and has increased
6.7% in three years.
12-Month Percent Change December -December
2017 – 2018 3.4%
2016 – 2017 -0.4%
2015 – 2016 3.3%
39.8M SF
Total Inventory
65K SF
Net Absorption
12.3%
Vacancy
Houston Healthcare Industry
In The News
According to the 2018-2019 report from the Center for World
University Rankings, six Houston-area universities and medical
schools ranked in the top 500 universities in the world.
For details, visit http://cwur.org/2018-19.php
CWUR