HOUSTON – (Realty News Report) – Medicine is in the Houston real estate industry’s DNA – almost as much as energy is. With 1,345 total acres and $25 billion in GDP, the Texas Medical Center is the eighth largest Business District in the U.S. TMC’s campus encompasses 50 million developed square feet to say nothing of 9,200 total patient beds. So what’s happening in the medical sector of the city’s real estate market? Are investors still attracted to Houston’s medical office market? Are sales increasing? Holding steady? To find out, Realty News Report spoke with one of the city’s experts — Beth Young, Senior Vice President of Colliers International. Beth is a healthcare-property advisor and investment sales specialist for health systems, private and institutional investors, and users of medical facilities. She also is a Trustee with the Harris County Hospital District Foundation where she chairs the Small Grants Committee; and is a Board member of the Greater Houston Women’s Chamber of Commerce where she chairs the Women’s Health Network of the Texas Medical Center. An expert in the healthcare real estate investment market, she is a Top Producer for Colliers International.
Realty News Report: Investors seem to have been highly interested in Texas healthcare real estate in 2019. What’s in store for that sector in 2020?
Beth H. Young:The Houston healthcare office market is poised for another year of growth and interest from investors. There is much demand for healthcare investment properties, but few properties are for sale. However, with strong demand for medical offices in suburban locations, developer activity is expected to continue. With that in mind, when a good option becomes available for investors, it’s likely we’ll see strong competition between the investors.
Realty News Report: Who are the investors that are buying these properties? Are you seeing any foreign investors? REITs?
Beth H. Young: We are still seeing private equity as the leader in healthcare property investments, followed by health systems and REITs depending on the quality and location. Hospitals and health systems still own the majority of medical office buildings (MOBs), followed by private investors, providers and then REITs.
Realty News Report: We’ve known all about the flight-to-quality in the office market. Is the flight-to-quality playing out in the medical sector? And what are the most desired attributes of a top quality medical property today?
Beth H. Young: Investors always want the highest quality they can afford, and it pays off for them in the long-term. The most desired attributes of top quality MOBs include location (location, location), occupancy, credit strength of tenants, length of leases (and terms including regular lease rate increases), and age of the building. One of my favorite clients always asks for “the story.” He wants to know about the visibility, the growth of the area, why this property and location will draw strong tenants for years to come, if the building has any age on it and when it was last renovated or to what extent. Tenants who lease in better MOBs are considered more creditable and stable, and often invest heavily in the buildout of their suites with medical equipment and furnishings that are expensive to purchase and install, not to mention “move.” During the Great Recession, healthcare properties maintained a 90% or better occupancy compared to other types of properties in commercial real estate.
Realty News Report: The massive Post-WW2 Baby Boomer generation is aging. The oldest boomers will turn 74 this year (2020); and the youngest Boomers (born in 1964) will be turning 56. Can you speak to the threats and opportunities posed by demographic trends?
Beth H. Young: Aging demographics will help establish that healthcare properties remain a viable investment well into the future. Currently, Baby Boomers make up 28% of the population; and in ten years, one in five people in the U.S. will be over 65. That means a 50% increase in the number of Americans requiring nursing home care. In 15 years, the number of people that are 65 will outnumber those under 18; and in 30 years, the number of people over 65 in the U.S. will double. The challenges of aging imply dealing with chronic health conditions including serious diseases such as diabetes, cancer, heart disease and Alzheimer’s. This requires more drugs, more healthcare professionals, and more space for medical services. Our city leaders will have to reassess all conditions of their communities, from health systems and methods of providing care to how entire cities are even structured to accommodate this huge demographic profile. Governments and health systems having been planning for decades to be ready.
Realty News Report: Are all medical properties headed for growth, or are there some special medical property types that are better than others?
Beth H. Young: Some of the healthcare real estate that is seeing strong growth includes hospitals, medical office buildings (MOBs), surgery centers, imaging centers, urgent care facilities, free-standing emergency centers, rehabilitation facilities, behavioral facilities and assisted living properties. In the past 5 years, the nationwide footprint of MOBs has increased by 4.5%, and new urgent care centers (UCCs), typically seen in retail locations, have increased by 44% in the same time period. As new hospitals are built, older ones will often be repurposed. Common new uses for these buildings include rehabilitation, behavioral or assisted living facilities. A general trend is the development of outpatient facilities in locations closer to where patients live that offer quicker and high quality care in a cheaper and efficient way. Of the new medical office construction to come online in the last year, approximately 70% has been for off-campus facilities, often in locations with retail-like characteristics. Also technological advances and engaging remotely with patients will result in more Baby Boomers living independently rather than in senior care, and that means a need for more outpatient facilities.
Realty News Report: Houston has had an amazing amount of construction starts in the last couple of years and more are in the pipeline. A recent report showed Houston and Dallas deliveries of new MOB product trailed only Chicago last year. Is there any chance of overbuilding in Houston?
Beth H. Young: The Metro Houston area added nearly 92,000 new residents in 2018, increasing the region’s population to nearly 7 million. It was projected that by 2020, the population should exceed 7.1 million. Houston ranked third in the nation in overall population growth. When you apply the facts about the population growth and aging and what that means for healthcare, I expect we’ll need to continue building just to keep up with the coming challenges. As long as trends in healthcare continue to indicate longer lifespans and increased care, medical office space will remain in demand.