Healthcare and Real Estate: The Q&A with Coy Davidson of Colliers International

Houston is known for two major industries: energy and healthcare. Energy isn’t as dominant as it once was, particularly with the price of a barrel of oil hitting lows that haven’t been seen for years. Not so for healthcare. Coy Davidson, Senior Vice President, Office & Healthcare Services in the Houston office of international brokerage firm Colliers International says growth in the healthcare industry in Houston is phenomenal. Coy has been involved in the healthcare sector for a number of years, working with clients including Houston Methodist. “It’s a recession-proof industry,” says Coy with a smile.

Some of Davidson’s other insights:

Realty News Report: There’s a lot of medical job growth in Houston area. Why?

Davidson: Two words “population growth” Over the last decade Houston has added an average of 125,000 residents per year. Healthcare providers have been adding facilities and employees to accommodate all the new rooftops in the region.

Realty News Report: Is it correct that some $3 billion in healthcare construction is happening now in the Houston area?

Davidson: Yes, there is more than $3 billion of new healthcare construction in the Greater Houston area. I like to refer to it as “Houston’s Healthcare Arms Race.” Health Systems are busy constructing new facilities to capture market share among Houston’s rapidly expanding population. Add the aging baby boomer population with increasing health service needs and hospitals are adding both acute care and outpatient facilities in quest of market share.

Realty News Report: Is this boom happening across the nation or is it just a Texas phenomenon?

Davidson: No, it’s not just Texas but healthcare growth isn’t uniform throughout the remainder country. As of July 2015 new healthcare construction is up 6.4 percent year-over-year nationally. As you would expect, California and Texas lead the way. Not every major metropolitan area in the country is growing at the pace of the major Texas cities.

Realty News Report: How is Obamacare impacting real estate?

Davidson: That is a really broad question but I will try and touch on the more obvious factors. Some of the factors affecting healthcare real estate are demographic related. Probably the biggest factor that the Affordable Care Act (ACA) has had on real estate is that it is driving consolidation within the sector and health systems are looking for ways to be more efficient because there is downward pressure on reimbursements. Health systems are looking to deliver more services in lower cost settings outside the main hospital campus and real estate plays a major role in that objective.

Realty News Report: In Houston, where is this healthcare building activity occurring? What are some of the hot pockets?

Davidson: At the moment, the Texas Medical Center and The Woodlands are the most active markets in terms of new healthcare construction however, growth is occurring throughout the greater Houston metropolitan area, particularly in fast growing suburban areas. Health systems in Space City are following the growth in rooftops.

Realty News Report: What about the world class Texas Medical Center? Is the TMC running out of area to expand?

Davidson: There are some barriers to growth in the Texas Medical Center. Available land exists to the South and East of the Texas Medical Center proper. When you talk about the TMC campus proper boundaries, there is not much available land for new construction. But if the Center can’t expand horizontally, it can always go vertical with expansions as you are seeing right now. The Texas Medical Center will always be the center of Houston’s healthcare universe, but much of the expansion taking place is a push to the suburbs with a goal of providing more convenient and accessible healthcare to suburban residents.

Realty News Report: So, are privately-owned doctors offices a thing of the past? Are physicians just going to work in big healthcare systems and hospitals? What impact does that have on the real estate market?

Davidson: Maybe not completely a thing of the past, but the trend is that more physicians are opting for the hospital system employment model. The number of independent physicians has declined over the last several years, from 57 percent in 2000 to 49 percent in 2005 and 37% in 2013 according to a recent report. In 2016, this figure is projected to drop even further, to 33 percent. That’s the wave of the future.

Realty News Report has been named Media Partner for the Texas Healthcare Real Estate 2015  Summit in Houston on October 6. Click here for information and registration.