Healthcare providers look for ways to make patient care more convenient and cost effective

1. Houston healthcare real estate market continues
to demonstrate solid market fundamentals
Research &
Forecast Report
HOUSTON | HEALTHCARE
Mid-Year 2018
Healthcare Trends Commentary by Coy Davidson
Despite the constant uncertainty associated with the healthcare
sector, the Houston healthcare real estate market continues to
demonstrate solid market fundamentals with resurgent job growth
in the healthcare sector. Houston’s robust construction activity
and steady leasing activity aids healthcare providers to continue
to implement strategies making patient care more convenient and
cost-effective.
Healthcare Employment Resumes Growth
Healthcare providers nationally remain under pressure to reduce
costs and as a result, staff reductions have been necessary. The
Houston healthcare sector posted a net loss of 1,400 jobs in 2017,
the only annual loss recorded in the last 25 years.
In May, Bay Area Regional Hospital located in Webster Texas,
ceased operations and filed for bankruptcy protection, laying off
900 employees.
However, Healthcare employment has rebounded in the Houston
MSA adding 3,400 jobs in the second quarter of 2018 pushing mid-
year employment growth to 4,000 jobs.
TMC3
The Texas Medical Center (TMC) in Houston is the largest medical
complex in the world at a total of 1,345 acres and 50 million square
feet of developed space and over 60-member institutions and it is
projected to get even bigger with a major life sciences initiative.
TMC is developing a new biomedical research hub that will cluster
researchers and industry experts together on a collaborative
30-acre campus. Groundbreaking for TMC3, the new campus, is
expected to begin in 2019 with completion slated for 2022 adding
approximately 1.5 million square feet of research space to the TMC
campus footprint.
Five institutions —Texas Medical Center, Baylor College of Medicine,
Texas A&M University Health Science Center, University of Texas
Lisa Bridges Director of Market Research | Houston
Summary Statistics
Houston Medical Office Market Q2 2017 Q1 2018 Q2 2018
Vacancy Rate 11.7% 12.1% 12.3%
Net Absorption 60,278 15,465 1,440
New Construction 282,224 86,595 103,020
Under Construction* 709,669 467,843 445,137
*Under Construction excludes hospitals, but includes the medical office buildings within the hospital
complex
Asking Rents
Per Square Foot Per Year
Average $24.70 $25.21 $24.96
Class A $28.71 $29.28 $29.07
Class B $24.16 $24.62 $24.83
.
Market Indicators
Relative to prior period
Annual
Change
Semi-Annual
Change
Semi-Annual
Forecast*
VACANCY
NET ABSORPTION
NEW CONSTRUCTION
UNDER CONSTRUCTION
*Projected

2. 0
100
200
300
400
500
600
700
800
900
1,000
Q2 '14 Q2 '15 Q2 '16 Q2 '17 Q2 '18
Millions
Rolling 12-mo. Total Quarterly Vol
0
100
200
300
400
500
600
Q2 '14 Q2 '15 Q2 '16 Q2 '17 Q2 '18
Houston U.S.
Q2 2018
NO. OF PROPERTIES: 22
TOTAL SF: 4.5M
AVERAGE $/SF: $81
AVERAGE CAP RATE: 6.0%
Sales By Total ($)
Average Price Per SF
Sales Activity
Source: Real Capital Analytics
2 Houston Research & Forecast Report | Mid-Year 2018 | Healthcare | Colliers International
Health Science Center at Houston and University of Texas MD
Anderson Cancer Center — are combining forces on the new TMC3.
The new campus alone is expected to have a 5.2 billion dollar
impact on the city of Houston and create a projected 30,000 new
jobs.
Investor Activity
Investors are increasingly viewing medical office buildings (MOB)
which have demonstrated more stable occupancy rates than other
real estate asset classes as an increasingly attractive investment
opportunity. Despite a complex and challenging healthcare
landscape, in the long-term, investors foresee a healthcare delivery
system in the U.S. that is going to continue its shift to outpatient
settings. 2017 was a record year for MOB investment volume
nationally and the momentum has continued into 2018.
Houston with its reputation as a dynamic healthcare city, with a
stable economy and growing population, remains a favored target
market among healthcare real estate investors.
Landmark Sale
In July, LaSalle Investment Management acquired The Memorial
Hermann Medical Plaza located at 7400 Fannin in the Texas
Medical Center from a joint venture comprised of Misher Healthcare
and Memorial Hermann Healthcare. The 28-story, 510,000
square-foot, Class A+ medical office building in the Texas Medical
Center reportedly traded for a record-setting $405 million, which
is believed to be the highest amount ever paid for a single medical
office building property in the U.S.
Other Notable Houston MOB Sales in the first half of 2018 include:
>> Heitman acquired a 17-building MOB portfolio from Bentall
Kennedy which included four Houston area medical office
buildings totaling 459,544 square feet, included in the sale were;
Memorial Hermann Katy Medical Plaza 1, Memorial Hermann Katy
Medical Plaza 2, Memorial Hermann Sugar Land Medical Plaza 1,
Memorial Hermann Sugar Land Medical Plaza 2.
>> Virtus Real Estate Capital based out of Austin acquired 251 &
253 Medical Center Blvd (86,297 SF) in Webster, Texas.
>> IRA Realty Capital acquired the 63,090 square foot, Katy Medical
Arts Center in Katy, Texas.
Expansions / Construction Activity
Healthcare providers are dealing with a myriad of challenges in
the face of softening admissions, changing consumer expectations
about healthcare, tight operating margins, shrinking budgets and
shifting policies. While facing these challenges many health systems
are looking to expand their access points to capture more patients
and drive referrals.
Outpatient clinics are more important than ever before as they
become the primary delivery vehicle for care. The traditional hub

3. Job Growth & Unemployment
(not seasonally adjusted)
UNEMPLOYMENT 5/17 5/18
HOUSTON 4.8% 4.2%
TEXAS 4.1% 3.7%
U.S. 4.1% 3.6%
JOB GROWTH
Annual
Change
# of Jobs
Added
HOUSTON 2.6% 79.2K
TEXAS 2.8% 344.7K
U.S. 1.6% 2.4M
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%
15.00%
$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 | Mid-Year 2018 | Healthcare | Colliers International3
and spoke model in healthcare, which puts hospitals at the center
of care delivery, is changing to focus more on ambulatory care.
The ambulatory network of the future is the hub of a care delivery
system and the health care system’s real estate footprint of the
future will include regional acute care hospitals paired with a
constellation of ambulatory facilities and medical office buildings
to include a mix of community-based comprehensive care centers
with a mixture of services, micro-hospitals, ambulatory surgery
centers, free-standing emergency departments, imaging centers,
primary care clinics and urgent care clinics.
In addition to major expansions in the Texas Medical Center,
Houston area healthcare providers continue to expand their
presence in suburban markets which are driving construction
activity from both healthcare providers themselves as well as third-
party developers.
Healthcare construction projects total over 4.8 million square feet
in the Houston area with approximately 4.3 million square feet
of new hospital space under construction. The bulk of the new
hospital construction comprises major expansion projects in the
Texas Medical Center by member institutions. However, Houston
Methodist Hospital is expanding their suburban campuses in Sugar
Land and Baytown. UTMB is expanding their campus in League
City by 300,000 square feet and MD Anderson Cancer Center is
building a new 208,000 square foot Hospital in The Woodlands.
New Medical Office Building development totals approximately
500,000 square feet comprised of nine (9) projects dispersed
throughout several suburban submarkets. The largest medical office
building currently under construction is Hedwig Place expected
to deliver 102,000 square feet to the in early 2019. The five-story
Class-A medical office in West Houston building broke ground 65%
pre-leased.
Houston based developer Wile Interests recently announced plans
to break ground in the first quarter of 2019 on Medical Plaza
West, a new 70,000 story Class-A Medical Office Building in West
Houston.
Leasing Trends
The bulk of leasing activity is coming from Hospital systems and
large physician practice groups as physicians continue to migrate
towards hospital system employment versus independent practice
and as a result, the size of a typical medical office lease is trending
upwards. However, healthcare leasing activity is not restricted
solely to medical office buildings as healthcare providers are
increasingly opting for retail centers to establish outpatient clinics,
particularly in the faster-growing suburbs.

4. Texas Medical Center
>> World’s Largest Medical Complex (1,300 Acres)
>> 54 Member Institutions
>> 10M Patients Annually
>> 106,000 Employees
>> 5,000 Physicians
>> 49,000 Life Science Students
>> $960 Million in Charity Care
Houston MSA Health Care
>> 128 Hospitals
>> 18,681 Hospital Beds
>> 16,070 Licensed Physicians
>> 299,600 Health Care & Social Assistance Jobs
>> 3.9% Annual Employment Growth
4 Houston Research & Forecast Report | Mid-Year 2018 | Healthcare | Colliers International
Galveston
Bay
225Bellaire
The Woodlands
Humble
Pasadena
IAH
EFD
HOUSugar Land
Cypress
Tomball
Katy
rookshire
Lake
Houston
La Porte
146
League City
Kingwood
Atascocita
Spring
Pearland
35
35
Richmond
aller
Hockley
242
1488
1488
Conroe
Magnolia
Willis
Lake
Conroe
Crosby
CBD
Ship
Channel
Texas Medical
Center
Clear Lake
Baytown
Mont Belvieu
Dayton
149
149
Cleveland
105
105
105
321
330
Alvin
Hitchcock
Texas
City
Houston Area Hospital Locations
Texas Medical Center Map

5. 55 Houston Research & Forecast Report | Mid-Year 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

6. 6 North American Research & Forecast Report | 2014 | Office Market Outlook | Colliers International
Copyright © 2015 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 | Market
000 Address, Suite #
000 Address, Suite #
+1 000 000 0000
colliers.com/<<market>>
6 North American Research & Forecast Report | 2014 | Office Market Outlook | Colliers International
Copyright © 2017 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 (25%) Class B (57%) Class C (18%)
Mid-Year 2018 Houston Medical Office Highlights
10.0M SF
22.6M SF
FOR MORE INFORMATION
Lisa Bridges CPRC
Director of Market Research | Houston
+1 713 830 2125
lisa.bridges@colliers.com
CONTRIBUTOR
Coy Davidson
Senior Vice President | Houston
+1 713 830 2128
coy.davidson@colliers.com
0.4M SF
7.1M SF
Houston’s healthcare and social
assistance job growth slowed in the
first half of 2018 but has increased
6.3% in three years.
12-Month Percent Change June - June
2017 – 2018 0.3%
2016 – 2017 2.9%
2015 – 2016 3.1%
39.7M SF
Total Inventory
16.9K 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