Steady Growth and Tightening Vacancies Characterize Houston’s Medical Office Market Despite Dip in Sales Volume
The Houston medical office real estate market is strengthening, as evidenced by decreasing vacancies, growing rental rates, large development projects, and the city’s healthcare systems’ continuous expansion.
As of Q3 2023, the total square footage of available medical office space in Houston stood at 43,423,865 square feet. The market has also witnessed a construction boom with an additional 2,156,643 square feet currently in progress. This construction activity constitutes approximately 5% of the overall metro medical office inventory.
Occupancy Rate and Rents Rise
- The occupancy rate was 88.3% in Q3 2023, up 124 bps from the prior year. This indicates a tightening medical office market.
- The average asking rent was $23.82 per square foot NNN in Q3 2023, up 1.9% from the prior year. This indicates steady rental rate growth.
Investment Sales are Muted
18 medical office sales transactions occurred in the past 12 months, totaling $233.7 million, down 67.9% in volume from the prior year period. Sales volume has declined significantly as a result of the rapid rise in interest rates and the disruption of the capital markets.
New MOB Construction
2.2 million square feet of medical office space were under construction at the end of Q3. This represents 5% of the total metro medical office inventory, indicating continued development and expansion.
Health System Expansion & Performance
- Major health systems like Houston Methodist, MD Anderson, Memorial Hermann, and Kelsey Seybold continue to expand their footprint in the metro area, particularly in the suburbs.
- Top hospitals in the metro are seeing strong inpatient and outpatient revenue growth and have EBITDAR margins in the 13–20% range, indicating healthy operating performance.
In summary, the Houston medical office market is robust but nuanced, with strong indicators in terms of construction activity, occupancy rates, and rental growth, offset by a decline in sales volume. Nevertheless, the ongoing expansions of major healthcare systems underscore a promising outlook for the market.
