1. YEAR-END 2013 | MEDICAL OFFICE
COLLIERS HEALTHCARE SERVICES GROUP - HOUSTON, TEXAS
HEALTHCARE MARKET COMMENTARY
Houston’s Medical Office Market Absorbs
662,000 SF in 2013
Houston
HOUSTON MEDICAL OFFICE
MARKET INDICATORS
2012
2013
CITYWIDE NET
ABSORPTION (SF)
1.3M
662K
CITYWIDE SF DELIVERED
1.7M
235K
CITYWIDE AVERAGE
VACANCY Q4
13.3%
11.7%
CLASS A
AVERAGE VACANCY Q4
13.6%
7.1%
CITYWIDE AVERAGE
RENTAL RATE Q4
$23.09
$23.19
CLASS A AVERAGE
RENTAL RATE Q4
$29.33
$28.17
Houston medical office buildings recorded 662,000 SF of positive net
absorption in 2013, the majority of which, 444,300 SF, occurred in the
first half of the year. By property class, Class A posted the largest
amount of positive net absorption in the second half of the year,
followed by Class B and then Class C posting 51,184 SF and 30,106
SF, respectively. The citywide average vacancy rate decreased 20
basis points and the average quoted rental rate increased 0.9% to
$23.19 per SF from $22.99 per SF in Q2 2013.
Houston’s medical office market is expected to benefit from both shortand long-term regional trends. Disciplined development, with only 6
new buildings added to inventory in 12 months, will relieve the
pressure in filling the existing vacant lease space.
Overall, Houston’s economy remains among the strongest in the U.S.
The Houston metropolitan area added 86,200 jobs between November
2012 and November 2013, an annual increase of 3.1% over the prior
year’s job growth. Local economists have forecasted 2014 job growth
to remain steady, adding between 68,000 and 72,000 jobs. Further,
Houston’s unemployment fell to 5.6% from 5.8% one year ago.
Houston area home sales increased 19.4% between November 2012
and November 2013.
JOB GROWTH & UNEMPLOYMENT
(Not Seasonally Adjusted)
ABSORPTION, NEW SUPPLY & VACANCY RATES
Absorption
UNEMPLOYMENT
11/12
11/13
HOUSTON
5.8%
5.6%
TEXAS
6.0%
5.8%
U.S.
7.4%
6.6%
ANNUAL
CHANGE
# OF JOBS
ADDED
HOUSTON
3.1%
86.2K
TEXAS
2.5%
275.7K
U.S.
1.7%
2.3M
JOB GROWTH
Accelerating success.
1,500,000
1,000,000
New Supply
Vacancy
17%
15%
13%
500,000
0
11%
9%
7%
(500,000)
5%
1

2. HEALTHCARE MARKET COMMENTARY | YEAR-END 2013 | COLLIERS INTERNATIONAL HOUSTON
Vacancy & Availability
MEDICAL OFFICE
EXISTING INVENTORY BY CLASS
Class A
7,340,192
27.5%
Houston’s medical office market
occupancy increased during the
second half of 2013 with the
citywide average vacancy rate
decreasing by 20 basis points to
11.7% from 11.9%.
Class B
14,239,726
54.9%
Class C
5,186,995
17.5%
By property class, Class A
vacancy rates posted the largest
decrease during the second half
of 2013, dropping 120 basis
points to 7.1% from 8.3% in Q2
2013. Class C vacancy rates
decreased 40 bps to 10.4% from
10.8%, while Class B vacancy
rates increased 40 basis points
to 14.2% from 13.8%.
Class A
Class B
Class C
MEDICAL OFFICE
NET ABSORPTION BY CLASS
Class A
Class B
Class C
700,000
600,000
500,000
400,000
300,000
200,000
100,000
Q4-10
Q1-11
Q2-11
Q3-11
Q4-11
Q1-12
Q2-12
Q3-12
Q4-12
Q1-13
Q2-13
Q3-13
Q4-13
0
(100,000)
MEDICAL OFFICE
CLASS A & B VACANCY VS. RENTS
Class A Vacancy
Class B Vacancy
Class A Rents
Class B Rents
16%
$35
14%
Sublease space has not had a
significant impact on current
vacancy rates, remaining below
0.2%. Of the 3.5M SF of vacant
space on the market, only
25,300 SF was sublease space.
Disciplined
medical
office
development activity has helped
prevent major upheavals in
current occupancy levels. There
were only six (6) new buildings
(235,000 SF) added to the
market during 2013, most of
which are low-rise professional
office buildings located in the
suburbs. Currently, there are six
(6) medical office buildings
under construction.
Empire Commercial Developers
has begun construction in Telfair
on a 3-story, 46,000-SF medical
office building with a 3-story
parking garage. The project is
slated for completion by July
2014.
Absorption & Demand
Houston’s medical office market
recorded 217,857 SF of positive
net absorption in the second half
of 2013, bringing the year-end
positive net absorption to
662,176 SF.
By property class, Class A
posted the largest amount of
positive net absorption in the
second half of 2013, with
136,567 SF, followed by Class B
properties posting 51,184 SF of
positive net absorption and then
Class C posting 30,106 SF.
Rental Rates
Quoted full-service rental rates
for all medical office property
classes averaged $23.19 per SF
in Q4 2013, an increase of 0.9%
from $22.99 per SF in Q2 2013.
Medical office building landlords
continued
to
offer
lease
concessions including free rent
to credit worthy tenants, but
have decreased the amount of
tenant improvement packages.
By property class, on a biannual basis, the average Class
A rental rate decreased from
$28.42 per SF in Q2 2013 to
$28.17 per SF, Class B
increased to $23.16 per SF from
$22.83 per SF, and the average
Class C rate increased to
$18.08 per SF from $17.81 per
SF.
$30
12%
$25
10%
$20
8%
Q4-13
Q3-13
Q2-13
Q1-13
Q4-12
Q3-12
Q2-12
Q1-12
Q4-11
Q3-11
Q2-11
Q1-11
4%
$15
Q4-10
6%
$10
COLLIERS INTERNATIONAL | P.2

3. HEALTHCARE MARKET COMMENTARY | YEAR-END 2013 | COLLIERS INTERNATIONAL HOUSTON
SALES TRANSACTIONS
Clear Lake Rehabilitation
Hospital
NASA/Clear Lake Submarket
RBA:
Built:
Buyer:
Seller:
Sale Date:
Sale Price:
58,023 SF
1991
Health Care Property, Inc.
Kindred Healthcare, Inc.
September 2013
$15.2M
Westwood Plaza II
Southwest Beltway 8 Submarket
Sales Activity
Transaction
activity
slowed
slightly between mid-year 2013
and year-end 2013, with 16
properties
changing
hands
compared to 30. According to
CoStar Comps, Houston medical
building sales transactions in the
second half of 2013 had a total
sales volume of $36.3M.
Many of the transactions were
multi-property portfolio
sales,
however, there were several
single property transactions that
occurred, which are listed in the
column to the left.
Currently, there are 48 properties
listed for sale and 1 pending
transactions.
Leasing Activity
Houston’s medical office leasing
activity reached 391,400 SF in the
second half of 2013. By property
class, Class B product led the
market with 279,600 SF leased,
followed by Class A at 74,100 SF,
then Class C at 37,700 SF.
Although the majority of new
leases signed in the second half
of the year were in the 1,000 5,000 SF range, there were a few
larger lease transactions.
DaVita HealthCare Partners, Inc.
leased 15,180 SF in the Bayshore
Medical Building located at 333
Bayshore Blvd. in Pasadena, TX.
UT Physicians leased 14,048 SF
in the Plaza Medical Center
located on Binz St in the South
Main/Medical Center submarket.
Additional transactions under
5,000 SF include: Medwin Family
Medicine Rehab’s lease of 4,340
SF at 1235 Lake Pointe Pwy. in
the
Fort
Bend/Sugar
Land
submarket and Methodist Primary
Care Group leased 3,737 SF at
4710 Bellaire Blvd. in the Bellaire
submarket.
RBA:
Built:
Buyer:
214,073 SF
1982/1998
Mental Health & Mental
Retardation Authority
Seller:
MidFirst Bank
Sale Date: December 2013
Sale Price: $9.5M
8340 Coffee St
South Submarket
RBA:
Built:
Buyer:
Seller:
Sale Date:
List Price:
Cap Rate:
10,500 SF
2006
Areteaus Realty Trust, LP
Jaffe Dialysis, LLC
November 2013
$5.7M
8.2%
Source: Costar Group; Real Capital Analytics
COLLIERS INTERNATIONAL | P.3

4. HEALTHCARE MARKET COMMENTARY | YEAR-END 2013 | COLLIERS INTERNATIONAL HOUSTON
TEXAS MEDICAL CENTER
The Texas Medical Center (TMC) – the world’s largest medical center – represents one of Houston’s major
economic drivers and core industries with an estimated regional annual economic impact of $15 billion.
TMC is also one of Houston’s largest employers with 106,000 employees, including physicians, scientists,
researchers and other advanced degree professionals in the life sciences.
The internationally-renowned, 1,345-acre TMC is the world’s largest medical complex with 54 member
institutions, including leading medical, academic and research institutions, all of which are non-profit and
dedicated to the highest standards of research, education and patient and preventive care. Over 70,000
students – including more than 20,000 international students – are affiliated with TMC, including high
school, college and health profession graduate programs. More than 7.2 million patients visited in 2012,
including approximately 16,000 international patient visits.
In addition to the medical facilities and institutions of higher learning, TMC is also home to more than 290
professional buildings. Overall, the complex covers over 18 miles of public and private streets and
roadways, with 45.8M SF of existing patient, education, and research space. TMC has continued to grow
and expand over the past several decades with the majority of growth occurring in the past ten years. The
Center is located in the 110-acre University of Texas Research Park, a joint effort between the University of
Texas Health Science Center, M.D. Anderson and General Electric Healthcare. TMC spent $7.1 billion in
building and infrastructure investments between 2008 and 2012, and spent over $3.4 billion on research
and over $960 million on charity care in 2012.
The University of Texas M.D. Anderson Cancer Center in the Texas Medical Center,
ranked #1 in U.S. News & World Reports “Americas Best Hospitals 2013” for cancer care.
TMC Patient Care Institutions
TMC Academic and Research Institutions
DePelchin Children’s Center
Sabin Vaccine Institute
The Menninger Clinic
The University of Houston – Victoria School of Nursing
The University of Texas M.D. Anderson Cancer Center
Texas Children’s Hospital Neurological Research Institute
Texas Children’s Hospital
Baylor College of Medicine
Memorial Hermann Hospital System
The University of Texas Health Science Center at Houston
The Methodist Hospital
The University of Texas M.D. Anderson Cancer Center
St. Luke’s Episcopal Hospital
University of Houston College of Pharmacy
Lyndon B. Johnson General Hospital
Rice University
Quentin Mease Community Hospital
Texas A&M University Health Science Center
Ben Taub General Hospital
Prairie View A&M University College of Nursing
The Institute for Rehabilitation and Research
Texas Woman’s University Institute of Health Sciences
The Hospice at the Texas Medical Center
Texas Southern University College of Pharmacy and
Health Sciences
Texas Heart Institute
Shriners Hospitals for Children – Houston
Veterans Affairs Medical Center in Houston
Harris County Psychiatric Center
Houston Academy of Medicine
COLLIERS INTERNATIONAL | P.4

5. HEALTHCARE MARKET COMMENTARY | YEAR-END 2013 | COLLIERS INTERNATIONAL HOUSTON
HOUSTON AREA HOSPITAL LOCATIONS
Houston MSA Health Care
115 Hospitals
19,830 Hospital Beds
13,360 Physicians
299,600 Health Care & Social Assistance jobs
3.5% annual employment growth
TEXAS MEDICAL CENTER MAP
Texas Medical Center
World’s Largest Medical Complex (1,300 Acres)
54 Member Institutions
7.2M Patients in 2012
106,000 Employees
5,000 Physicians
49,000 Life Science Students
$960 million in Charity Care
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6. HEALTHCARE MARKET COMMENTARY | YEAR-END 2013 | COLLIERS INTERNATIONAL HOUSTON
The Colliers Advantage
Enterprising Culture
Colliers International is a leader in global real estate services,
defined by our spirit of enterprise. Through a culture of service
excellence and a shared sense of initiative, we integrate the
resources of real estate specialists worldwide to accelerate the
success of our partners.
When you choose to work with Colliers, you choose to work
with the best. In addition to being highly skilled experts in their
field, our people are passionate about what they do. And they
know we are invested in their success just as much as we are
in our clients’ success.
This is evident throughout our platform—from Colliers University, our proprietary education and professional development platform, to our
client engagement strategy that encourages cross-functional service integration, to our culture of caring.
We connect through a shared set of values that shape a collaborative environment throughout our organization that is unsurpassed in the
industry. That’s why we attract top recruits and have one of the highest retention rates in the industry. Colliers International has also been
recognized as one of the “best places to work” by top business organizations in many of our markets across the globe.
Colliers International offers a comprehensive portfolio of real estate services to occupiers, owners and investors on a local, regional, national
and international basis.
LISA R. BRIDGES
Director of Market Research | Houston
Direct +1 713 830 2125
Fax +1 713 830 2118
lisa.bridges@colliers.com
COLLIERS INTERNATIONAL
1233 W. Loop South
Suite 900
Houston, Texas 77027
Main +1 713 222 2111
Accelerating success.
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