Healthcare Trends Change Landscape for Commercial Real Estate in Houston

March 17 3 min read

Stream Realty Partners’ Houston team recently participated in Bisnow’s National Healthcare South event where leaders throughout the Houston healthcare industry met to discuss the latest trends and economics impacting the healthcare industry, specifically within Houston. The healthcare industry is in the midst of a significant transformation as healthcare providers shift their focus – and their capital – toward value-based care and the efficient, cost-effective delivery of care. Given current trends in healthcare and the national economy, the primary focus for all healthcare professionals looking to reduce costs should be real estate. Whether in the form of new construction in geographically strategic locations, or repurposing current facilities to adapt to changing technology and patient needs, the demand for healthcare real estate is growing at a pace that exceeds current supply.

In addition to real estate, the dynamic of a growing aging population that is living longer, as 10,000 people daily reach 65 years of age, has led to an increased demand in job growth.  In Texas, education and health services added the most jobs with 57,000 (3.4 percent) over the last 12 months statewide. This sector also remains the largest U.S. employer, accounting for more than 13 percent of the national workforce. Furthermore, U.S. healthcare spending is projected to grow at an annual rate of 5.5 percent, up to $5.7 trillion by 2026.

In addition to the growth in the healthcare workforce and estimated spending, healthcare leaders also touched on the emergence of value-based care, that is, delivering high-quality care at a reduced cost, and the important role that real estate can play. The significance of value-based care is largely in the eye of the beholder and may not mean the same thing to a consumer as it does to a provider. Providers may see cost-reduction benefits through new technologies like tele-health, where the doctor can visit with a patient without the need for a face-to-face encounter. And consumers may find significant value in being able to satisfy almost all of their medical needs within the community they live, rather than having to visit a large and complex hospital campus.

Stream recently delivered on this theory of community-based care with the completion of Hedwig Place, a Class A medical office development located on two acres of land along Interstate 10 in one of Houston’s most prominent neighborhoods. The five-story, 102,773-square-foot building answers the community’s demand for a state-of-the-art, off-campus facility in the Hedwig Village area. Current tenants include Texas Ear, Nose & Throat and Memorial Plastic Surgery, and there is currently 2,000 to 28,000 square feet left available for lease at the building. Stream’s second medical office development, Spring Valley Place, will break ground late Summer 2020 and sits on the northwest corner of Campbell Road and Interstate 10 feeder road. The 125,000 square foot building is comprised of five office levels connected to a seven-level parking garage. Space availability ranges from 2,000 to 112,000 square feet.

One thing remains clear, the trend in healthcare delivery is shifting towards the outpatient setting. Health systems throughout Texas have begun adapting accordingly, and those who have not yet begun this transition are already behind. According to a report from Deloitte Health Care, hospital outpatient revenue grew at a higher compounded annual rate (9 percent) compared to inpatient revenue (6 percent) between 2011 and 2018. Perhaps a more meaningful statistic shows that the aggregate outpatient shares of total hospital revenue grew from 28 percent in 1994 to 48 percent in 2018.

The healthcare industry is at no pace to slow down given the current economics, and the trend of community-based care in Houston will continue to drive real estate decisions for health systems and private practice physicians alike.