Houston MOB Market Cools in Late 2024, But Vacancy Dips and Rents Rise
Key Takeaways
- Positive absorption trend continues
- Vacancy improves
- Deliveries drop, construction down
- Houston tops MOB nationally for absorption, completions
MOB Highlights
Activity levels in the Houston medical office building (MOB) market slowed during the second half of 2024, with net absorption dropping to 57.4% of the first half. Total net absorption for the year reached 1.3M SF, a 23.3% decline from 2023’s 1.7M SF with declines in both new supply and construction levels. The vacancy rate fell to 10.8% in the second half, down 90 basis points from 11.7% at midyear and down 110 basis points year over year. Deliveries in the second half totaled 135,000 SF, a sharp decline from 815,059 SF at midyear and 898,946 SF at mid-year 2023. Construction activity remained steady, with 1.5M SF underway at both midyear and yearend, compared to 2.1M SF at mid-year 2023. Asking rents are rising, with the average asking NNN rental rate now $23.51 PSF, up from $23.13 at mid-year 2024 and up from $23.34 at mid-year 2023.
Executive Summary
The Houston medical office building (MOB) sector remains a key factor in the metro’s healthcare infrastructure, driven by ongoing institutional investment in medical facilities.
Demand for MOBs remained strong, keeping pace with new deliveries and driving vacancy rates lower both quarter over quarter and year over year. During the past 12 months, The Houston Medical Office vacancy rate declined by 110 basis points to 10.8%, supported by a positive absorption of 1.3 million square feet, which outpaced the 950,059 square feet of new deliveries while maintaining a stable construction pipeline.
National rankings
Nationally, Houston continues to be a dominant player with repeat No. 1 rankings for both year-over-year net absorption and completed square footage among the Top 50 MOB markets. The metro also ranked No. 3 for MOB square footage under construction during the same period, according to Revista.
Growth in the sector is driven by expansions from major hospital systems, medical groups, and life sciences firms, both on campus and off campus.
Notable developments include:
- Kelsey-Seybold currently has several large projects either proposed or under construction including area clinics, expansions/redevelopments and new developments across metro Houston. The largest projects include the 261,629-square-foot West University Clinic renovation at 2727 W Holcombe; the Northwest Clinic, a 135,255-square-foot building at 19926 Northwest Freeway; and the West Grand Parkway ASC Hub, a 111,803-square-foot facility at 2530 W. Grand Parkway N. All projects underway are scheduled for completion in 2025.
- Houston Methodist has several projects underway. A 40,000-square-foot facility at 1951 Southmore scheduled for completion in October 2025 is being developed in partnership with Legacy Community Health. Other projects include Cinco Ranch’s Comprehensive Care Center, a 65,000-square-foot project at 26000 FM 1093 scheduled to open in March 2026; and Creekside Park Medical Plaza at 26424 Strake in The Woodlands, which should be open in April 2025.
- Memorial Hermann is also expanding with three larger projects adding to its campuses in Cypress, The Woodlands and Sugar Land. The Cypress building will add 100,000 square feet to the campus while the fifth building in The Woodlands will be adding 135,000 square feet. The project in Sugar Land is also adding 135,000 square feet in Medical Plaza 3. All three projects are scheduled for completion during the first half of the year.
- Castle Biosciences, a leading diagnostics company, has broken ground on an 80,000-square-foot building at 1500 W Parkwood Avenue in the NASA/Clear Lake submarket to be open in 2025.
- Village Medical will occupy about half of a new 48,000-square-foot building in Sugar Land off Highway 6 to be completed in early 2025.
MOB Sales Activity
Medical office building (MOB) sales slowed in the second half of 2024 to 16 sales totaling $176.7 million compared to H1’s 25 sales totaling $242.1 million. Total 2024 sales volume is 41 transactions totaling $418.8 million, an increase from the total 2023 sales volume of $251.9 million and 33 transactions.
The average sales price per square foot is $268, a 2.2% decrease from the average $274 per square foot from the first half but 1.5% higher than the average $262 per square foot reported a year ago.
Notable MOB sales during the second half of 2024 included River Oaks Medical Tower, formerly T-Mobile Tower, a 17-story, 140,012-square-foot building purchased by Dallas-based Altera Development Company; and the Clear Lake Medical Office Building, a 109,603-square-foot property in southwest Houston, acquired by global private equity conglomerate KKR.
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