Houston Medical Office Monthly Market Snapshot September 2021

Texas Medical Center breaks ground on $1.8 billion TMC3 life sciences campus. Texas medical center

VACANCY AT 18% Overall vacancy for medical office space in the Houston market is at 18.0%, up 20 basis points from 17.8% this time last year. Office medical space has recorded more than 1 million sq. ft. of leasing activity year-to-date—which is comprised of both new leases and renewals—while net absorption (move-ins minus move-outs) is at negative 344,000 sq. ft. So far this year, developments under construction stand at 880,000 sq. ft. One 48,000-sq.-ft. property has delivered in 2021. The average asking full-service rent is at $26.68 per sq. ft., up 3.8% from last year at this time, while Class A medical office space is averaging $32.36 per sq. ft., up 7.7% from the prior period at $30.04 per sq. ft.

$1.8 BILLION LIFE SCIENCES CAMPUS BREAKS GROUND The Texas Medical Center has broken ground on phase one of the 37-acre TMC3 that includes 950,000 sq. ft. of research space anchored by a 700,000-sq.-ft. facility focused on life sciences. Also included is the 150,000-sq.-ft. TMC3 Collaborative Building, a 521-room hotel with 65,000 sq. ft. of conference space, a 350-unit residential tower, and 18.7 acres of double-helix-shaped public park space. Phase one is expected to open in fall 2023, while the launch dates of additional phases of TMC3 are still being decided. It is reported that when fully built out, the TMC3 campus will total 6 million sq. ft. of development. The campus is expected to generate up to $5.4 billion in annual economic growth for Texas, as well as 42,000 new jobs. Click to read more at www.naipartners.com.

Houston Industrial Record

While the Houston office market has had a rough 12 months, and will likely to continue to lag in the coming quarters, the industrial market is booming. In fact, the industrial market in Houston is so strong that the metro area has hit the highest quarterly leasing total on record, according to a recent report from NAI Partners.

By the end of the second quarter of this year, Houston’s overall industrial vacancy rate stood at 9%, more or less unchanged since the previous quarter, however, there were 12.5 million square feet of leasing activity recorded for Q2 of 2021, which is more than double the 6 million square feet of leasing activity during the same period last year. A wave of new deliveries from previous quarters has kept inventory levels stable and average gross rent rates relatively flat.

The news is significant for numerous reasons, but namely how the industrial market is helping bolster the broader commercial real estate sector as other asset classes continue to struggle since the start of the pandemic. But other economic indicators continue to show improvement, the report reveals, such as lower unemployment stats, the increase in drilling operations, and an uptick in new construction. Click to read more at www.rednews.com.

Tanglewood Developer Plans $300 Million, 33-Story Tower

The family of the founder of Houston’s prestigious Tanglewood neighborhood plans to build a $300 million, 33-story condominium tower on the community’s southern edge.

The 1.3-acre site, at the northeast corner of Tanglewood Boulevard at San Felipe, currently houses the headquarters of Tanglewood Corp., a third-generation, family-run real estate venture founded by Tanglewood developer William G. Farrington. The ranch-style office building, which opened in 1949, the same year as the neighborhood, would be torn down to make way for the tower.

“We’ve been incubating this wonderful corner for approximately 70 years,” said Kendall Miller, Farrington’s grandson, who lives in the house his grandfather built nearby. “The plan has evolved over the years, but has always been the new commercial idea of the moment.” Click to read more at www.houstonchronicle.com.

Houston Hits Major Milestone as Industrial Market Reaches Record Quarterly Leasing

While the Houston office market has had a rough 12 months, and will likely continue to lag in the coming quarters, the industrial market is booming. In fact, the industrial market in Houston is so strong, that the metro area has hit the highest quarterly leasing total on record, according to a recent report from NAI Partners.

Graphic via NAI Partners

By the end of the second quarter of this year, Houston’s overall industrial vacancy rate stood at 9%, more or less unchanged since the previous quarter, however, there were 12.5 million square feet of leasing activity recorded for Q2 of 2021, which is more than double the 6 million square feet of leasing activity during the same period last year. A wave of new deliveries from previous quarters has kept inventory levels stable and average gross rent rates relatively flat.

The news is significant for numerous reasons, but namely how the industrial market is helping bolster the broader commercial real estate sector as other asset classes continue to struggle since the start of the pandemic. But other economic indicators continue to show improvement, the report reveals, such as lower unemployment stats, the increase in drilling operations, and an uptick in new construction.

According to the report, the vast majority of industrial leasing over the last several years has been for warehouse and distribution space. The metro has had 12 straight years of positive net absorption, the report indicates, even as Houston continues to also witness record levels of industrial construction.

Major Q2 leases highlighted in the report include Ferguson’s 750,7750-square-foot lease at the Empire West Business Park, a 685,000-square-foot lease by Living Spaces Furniture Company at the Air 59 Logistics Center and a 645,000-square-foot lease at 4725 E. Grand Parkway by Webstaurant Store.

Chart via NAI Partners

While 15 million square feet of new industrial space remains under construction, nearly 70% of it is already leased, the report indicates, further illustrating the high demand for industrial. Additionally, Port Houston’s container terminals have remained busy, with year-to-date activity increasing by 8% over the same period in 2020.

As Houston’s import-export activity increases and the economy continues to shift towards e-commerce and manufacturing on-shoring, and Texas’s population growth remains steady, the sky-high demand for new industrial products will likely continue for the foreseeable future.

Partners Real Estate Company Announces New Director-Level Hire

Partners Real Estate Company—the holding company of NAI Partners, Partners Capital, and Partners Development—has announced that Brett Chiles, a veteran private equity professional, has joined Partners Development as a Director. Mr. Chiles will be responsible for growing capital and sourcing debt for Partners Development’s ground-up retail and other development and investment opportunities. In addition, he will be responsible for other aspects of development projects including legal, entity organization, project management and other activities. Mr. Chiles has over two decades of experience in the investment space, and comes to Partners Real Estate Company from KA Investments, a Houston-based private equity firm where he was a Principal. Prior to that, he spent time at Equus Total Return, Inc., and Murphree Venture Partners. Mr. Chiles has an MBA from Rice University, and a Bachelor’s Degree in Business from Texas Christian University.

One Bright Spot in the Houston Office Market? Medical Leasing

The Houston metro area has a long way to go until its office market fully recovers. Houston led the nation in overall office vacancies at the new year at a staggering rate of 24%, but there is one bright spot in the market: medical leasing. It’s perhaps no surprise that there’s increased demand and growth in the healthcare and medical field across the nation during the pandemic, and the trend is likely to continue in the coming years. While traditional corporate offices sent their workers home throughout the worst months of the pandemic, medical businesses maintained a presence in the workplace as an essential service.

According to recent numbers from brokerage NAI Partners, a number of key metrics in the medical market in Houston reveal some optimistic signs. First, and perhaps most important, is the overall vacancy level of 16.8% from this past February was slightly lower than 17% from the same period a year prior. Additionally, gross average asking rent has increased slightly from $25.02 per square foot in February 2020 to $25.86 this last February.

However, there’s still a lot of space to fill and even more on the way. Overall medical office available increased from 18.5% to 21.1% year-over-year, and net absorption is way down, from nearly 157,000 square feet to -65,278 over the last year. There were no new deliveries to the market in February, but there remains nearly 864,000 square feet of office space currently under construction.


Leases of note mentioned in the report include a deal for a 35,000-square-foot space in the Bissonnet Medical Plaza in suburban Bellaire, a 20,000-square-foot lease at the Texas Medical Center near downtown Houston, and a 14,000-square-foot deal at the River Oaks Medical Center in Greenway Plaza.