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Houston medical office vacancy is on the rise as the citywide trend gravitates toward medical spaces closer to home.
Though absorption is improving across medical offices, so is vacancy as the construction pipeline has expanded, according to March data from NAI Partners. The industry now has 17.4% vacancy, up from 17% this time last year. That number is higher than what experts predicted last year. In a 2021 interview with Bisnow, Colliers International Senior Vice President Coy Davidson predicted that new construction would have little effect.
“We've kind of stuck around between 10% and 12%, 13% vacancy in the medical office market for years. We're not really adding a crazy amount of new square footage,” Davidson said at the time.
The industry has indicated some stability since pandemic lows, with net absorption and deliveries edging up year-over-year. Net absorption in February 2022 was negative 40K SF year-to-date, compared to negative 172K SF year-to-date in February 2021. Likewise, there were no deliveries reported in February 2021, versus 91K SF of deliveries in February 2022.
New medical development is primarily occurring closer to Houston-area residents rather than focusing on the urban core. NAI points to two particular projects outside of the Texas Medical Center: one, an unnamed 100K SF medical office at 2901 Kirby Drive in Upper Kirby, will be built by Clay Development. The space will be a five-story, Class-A office with retail space and garage parking. Newmark Director Richard Barbles and Associate Director Noelle Hsieh will represent the project for leasing.
In the suburbs, Houston Methodist has started on a 160K SF medical building at its Houston Methodist West campus at 18500 Katy Freeway. The six-story building will cost $65M and will have a 1,000-car garage. It is set to be completed in 2023.
“There is an ongoing trend in the medical industry toward convenience of care, with patients seeking healthcare in retail or medical office settings close to home,” Barbles said in a release. “As the healthcare industry continues to evolve and grow, we are excited to extend Newmark’s service offerings even further into Houston medical office real estate.”
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