Houston Medical Office Report 4Q-12


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Houston Medical Office Report 4Q-12

  1. 1. YEAR-END 2012 | MEDICAL OFFICECOLLIERS HEALTHCARE SERVICES GROUP - Houston TexasHEALTHCARE MARKET COMMENTARY Houston Houston’s Medical Office Market Posts 984,525 SF of Positive Net Absorption in 2012 COLLIERS INTERNATIONAL | HOUSTON MEDICAL OFFICE | 2ND QUARTER 2010 Houston medical office buildings recorded 249,533 SF of positive net absorption in the second half of 2012, pushing year-end 2012 net absorption to 984,525 SF. HOUSTON MEDICAL OFFICE By property class, Class A posted the largest amount of year-end positive net MARKET INDICATORS 1ST HALF 2ND HALF absorption with 771,903 SF, followed by Class B properties posting 244,875 SF 2012 2012 of positive net absorption. Since mid-year, the citywide average vacancy rate CITYWIDE NET decreased 10 basis points and the average quoted rental rate increased slightly ABSORPTION (SF) 735K 250K from $23.11 to $23.17 per SF. CITYWIDE SF DELIVERED 1.0M 207K Houston’s medical office market is expected to benefit from both short- and CITYWIDE AVERAGE VACANCY long-term regional trends. Disciplined development, with only 9 new buildings 12.6% 12.5% added to inventory in 12 months, will relieve the pressure in filling the existing CLASS A AVERAGE VACANCY vacant lease space. 14.4% 14.6% CITYWIDE AVERAGE RENTAL RATE Overall, Houston’s economy remains among the strongest in the U.S. Houston $23.11 $23.17 area home sales increased by 17.4% compared to sales one year ago. The CLASS A AVERAGE RENTAL RATE $28.92 $29.13 Houston metropolitan area added 85,000 jobs between November 2011 and November 2012, an increase of 3.2%, and is on track to add the same amount in 2013. Unemployment fell to 5.8% from 7.3% one year ago. ABSORPTION, NEW SUPPLY & VACANCY RATES JOB GROWTH & UNEMPLOYMENT Absorption New Supply Vacancy (Not Seasonally Adjusted) 1,200,000 NOV NOV 17% UNEMPLOYMENT 2011 2012 1,000,000 15% HOUSTON 7.3% 5.8% 800,000 TEXAS 7.2% 5.8% 600,000 13% U.S. 8.2% 7.4% 400,000 11% ANNUAL # OF JOBS JOB GROWTH CHANGE ADDED 200,000 9% HOUSTON 3.2% 85K 0 7% TEXAS 2.6% 274K U.S. 1.4% 1.9M (200,000) 5% Accelerating success. 1
  2. 2. MEDICAL OFFICE & HEALTHCARE MARKET COMMENTARY | YEAR-END 2012 | COLLIERS INTERNATIONAL HOUSTON TEXAS MEDICAL OFFICE Vacancy & Availability By property class, Class A posted the EXISTING INVENTORY BY CLASS Houston’s medical office occupancy largest amount of year-end positive increased slightly during the second net absorption with 771,903 SF, Class A Class B followed by Class B properties 7,611,919 14,239,726 half of 2012 with the citywide average 28.2% 54.9% posting 244,875 SF of positive net vacancy rate decreasing by 10 basis points (bps) to 12.5% from 12.6%. absorption. In contrast, Class C posted 32,253 SF of negative net By property class, Class B vacancy absorption. rates posted the largest decrease during the second half of 2012, 50 Rental Rates bps to 11.5% from 12.0% in 2Q 2012. Quoted full-service rental rates for all Class C Class A vacancy rates increased 20 medical office property classes 5,006,935 bps to 14.6 % from 14.4%, while 18.6% averaged $23.17/SF in 4Q 2012, an Class C vacancy rates increased 30 increase from the $23.00/SF in mid- Class A Class B Class C bps to 12.1% from 12.1%mid-year. year. Medical office building landlords Sublease space has not had a continued to offer lease concessions MEDICAL OFFICE significant impact on current vacancy including free rent and generous NET ABSORPTION BY CLASS rates, remaining below 1.0% of total tenant improvement packages to vacant space over five years. Of the attract and retain credit worthy Class A Class B Class C 3.4M SF of vacant space on the tenants.700,000 market at year-end 2012, only 61,180 SF was sublease space. By property class, on a bi-annual600,000 basis, the average Class A rental rate Disciplined medical office500,000 of $29.13 per SF increased from development activity has helped $28.92 per SF, Class B increased to400,000 prevent major upheavals in current $22.57 from $22.43 per SF, and the occupancy levels. There were only average Class C rate increased from300,000 seven (7) new buildings (152,108 SF) $22.43 to $22.57 per square foot. added to the market during 2011 and200,000 just nine (9) buildings (1.26M SF)100,000 delivered in 2012. The largest project completed within the past two years 0 was the University of Texas MD Anderson Cancer Center Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12(100,000) Administration Building located at 7007 Bertner Avenue in the Texas MEDICAL OFFICE Medical Center (895,600 SF owner CLASS A & B VACANCY VS. RENTS occupied). Presently, only one medical office20% $35.00 building is under construction, The18% $30.00 30,000 SF College Park Medical Plaza located at 3117 College Park $25.0016% Dr. in The Woodlands. The project is $20.00 23% pre-leased and is scheduled to14% deliver June 2013. $15.0012% Absorption & Demand $10.00 Houston medical office buildings10% $5.00 recorded 249,533 SF of positive net 8% $0.00 absorption in the second half of 2012, Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- pushing year-end 2012 net absorption 10 10 10 10 11 11 11 11 12 12 12 12 to 984,525 SF. Class A Vacancy Class B Vacancy Class A Rents Class B Rents COLLIERS INTERNATIONAL | P.2
  3. 3. MEDICAL OFFICE & HEALTHCARE MARKET COMMENTARY | YEAR-END 2012 | COLLIERS INTERNATIONAL HOUSTON TEXAS SALES TRANSACTIONS Sales Activity Leasing Activity Transaction activity remained solid Houston’s 2012 medical office leasing during 2012, with 57 properties activity reached 823,000 SF. By 8515 Fannin Street1 changing hands. According to CoStar property class, Class B product led the South Main/Medical Center Submarket Comps, Houston medical sales market with 464,000 SF leased, transactions had a total dollar volume of followed by Class A at 271,000 SF, then $170M, averaging $223 per SF with a Class C at 88,000 SF. 7.4% capitalization rate. Although the majority of new leases Many of the transactions were multi- signed in the second half of the year property sales, however, there were were in the 1,000 - 5,000 SF range, several significant single property there were a few larger lease RBA: 27,760 SF Built: 1994 transactions that occurred. transactions. Buyer: The Link Group, Inc. The 27,760 SF 8515 Fannin MOB in the One of the larger transactions was Seller: Treeline Partners Ltd Sale Date: Sep 2012 South Main/Medical Center submarket Physician Endoscopy Center’s lease1Colliers was purchased by The Link Group, Inc. renewal of 14,080 SF at 3030 S International Houston Transaction in September 2012. Gessner Rd. in the Westchase submarket. 1111 Augusta Drive The 80,740 SF 1111 Augusta MOB in San Felipe/Voss Submarket the San Felipe/Voss submarket was Additional lease transactions include: purchased by Sentinel Real Estate DermSurgery Associates, PA renewed Corporation for $21.4M or $265 per SF. its lease of 14,000 SF in Greenpark I in The property was built in 1977 and was the South Main/Medical Center renovated in 2004.. submarket; Legacy Community Health Center leased 3,700 SF at 8300 The 29,313 SF, Kingsland Medical Homestead Rd. in the Northeast Near Plaza located at 777 S Fry Rd. in the RBA: 80,740 SF submarket; Woodlands Gynocology & Katy Freeway West submarket was Built: 1977/2004 Aesthetics leased 3,000 SF Medical purchased by Finesa Real Estate Group Buyer: Sentinel Real Estate Corp Arts Center II in The Woodlands Seller: Healthcare Realty Trust Inc. for $4.3M or $147 per SF. submarket. Sale Date: Aug 2012 Investcorp JV Griffin Partners Sale Price: $21.4M purchased the Offices at Pin Oak Park, Cap Rate: 6.81% a 504,700 SF, five-building portfolio Source: Costar Group; Real Capital Analytics from McCord Development for $78.7M or $156 per SF. The property is located Cordes Medical Building in the Bellaire submarket and was 90% 2655 Cordes Drive occupied at the time of sale. E Fort Bend Co/Sugar Land Submarket Kingsland Medical Plaza 777 S Fry Rd Katy Freeway West Submarket RBA: 8,531 SF RBA: 29,313 SF Built: 2005 Built: 1994 Buyer: Scuben Cordes, LLC Buyer: Finesa Real Estate Group Seller: Jag At Cordes LLC Seller: Norvin Partners Sale Date: Nov 2012 Sale Date: Dec 2012 Sale Price: $2.3M Sale Price: $4.3M Cap Rate: 8.25% COLLIERS INTERNATIONAL | P.3
  4. 4. MEDICAL OFFICE & HEALTHCARE MARKET COMMENTARY | YEAR-END 2012 | COLLIERS INTERNATIONAL HOUSTON TEXAS TEXAS MEDICAL CENTER The Texas Medical Center (TMC) – the world’s largest medical center – represents one of Houston’s major economic drivers and core industries with an estimated regional annual economic impact of $14 billion. TMC is also one of Houston’s largest employers with 92,500 employees, including physicians, scientists, researchers and other advanced degree professionals in the life sciences. The internationally-renowned, 1,300-acre TMC is the world’s largest medical complex with 52 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 patient and preventive care. Member institutions include 13 hospitals and two specialized patient facilities, as well as 19 renowned academic and research institutions virtually covering all health-related careers – including two medical schools, four nursing schools, as well as schools of dentistry, public health, and pharmacy – and 15 support services organizations. Over 69,000 students – including more than 7,000 international students – are affiliated with TMC, including high school, college and health profession graduate programs. More than 7.1 million patients visited in 2011, including approximately 16,000 international patient visits. The University of Texas M.D. Anderson Cancer In addition to the medical facilities and institutions of higher Center ranked #1 in U.S. News & World Reports learning, TMC is also home to more than 280 professional “Americas Best Hospitals” for cancer care. buildings. Overall, the complex covers over 18 miles of public and private streets and roadways, with 45.5M SF of existing patient, education, and research space. TMC has continued to grow and expand over the past several decades with the majority of growth occurring in the past ten years. The Center is located in the 110-acre University of Texas Research Park, a joint effort between the University of Texas Health Science Center, M.D. Anderson and General Electric Healthcare. In terms of future growth, TMC approved $7.1 billion in building and infrastructure investments between 2008 and 2012, with annual research expenditures estimated at $1 billion. TMC Patient Care Institutions TMC Academic and Research Institutions The University of Texas M.D. Anderson Cancer Center Texas Children’s Hospital Neurological Research Institute Texas Children’s Hospital Baylor College of Medicine Memorial Hermann Hospital System The University of Texas Health Science Center at Houston The Methodist Hospital The University of Texas M.D. Anderson Cancer Center St. Luke’s Episcopal Hospital University of Houston College of Pharmacy Lyndon B. Johnson General Hospital Rice University Quentin Mease Community Hospital Texas A&M University Health Science Center Ben Taub General Hospital Prairie View A&M University College of Nursing The Institute for Rehabilitation and Research Texas Woman’s University Institute of Health Sciences The Hospice at the Texas Medical Center Texas Southern University College of Pharmacy and Health Sciences Texas Heart Institute Harris County Psychiatric Center Shriners Hospitals for Children – Houston Houston Academy of Medicine Veterans Affairs Medical Center in Houston COLLIERS INTERNATIONAL | P.4
  6. 6. MEDICAL OFFICE & HEALTHCARE MARKET COMMENTARY | YEAR-END 2012 | COLLIERS INTERNATIONAL HOUSTON TEXASThe Colliers AdvantageEnterprising CultureColliers International is a leader in global real estate services,defined by our spirit of enterprise. Through a culture of serviceexcellence and a shared sense of initiative, we integrate theresources of real estate specialists worldwide to accelerate thesuccess of our partners.When you choose to work with Colliers, you choose to workwith the best. In addition to being highly skilled experts in theirfield, our people are passionate about what they do. And theyknow we are invested in their success just as much as we arein our clients’ success.This is evident throughout our platform—from Colliers University, our proprietary education and professional development platform, to ourclient engagement strategy that encourages cross-functional service integration, to our culture of caring.We connect through a shared set of values that shape a collaborative environment throughout our organization that is unsurpassed in theindustry. That’s why we attract top recruits and have one of the highest retention rates in the industry. Colliers International has also beenrecognized as one of the “best places to work” by top business organizations in many of our markets across the globe.Colliers International offers a comprehensive portfolio of real estate services to occupiers, owners and investors on a local, regional, nationaland international basis. LISA R. BRIDGES COLLIERS INTERNATIONAL | HOUSTON Director of Market Research Houston 1300 Post Oak Boulevard Direct +1 713 830 2125 Suite 200 Fax +1 713 830 2118 Houston, Texas 77056 lisa.bridges@colliers.com Main +1 713 222 2111 Accelerating success. COLLIERS INTERNATIONAL | P.6