Houston Medical Space In High Demand, But Yesterday’s Buildings Won’t Cut It

Houston is a leader in healthcare, and its accompanying real estate facilities are constantly in a state of flux, growth and innovation.

But as providers move in or expand their presence in the market, they face challenges that make finding second-generation space and completing projects on a budget more difficult. Among them are elevated construction costs, “once-in-a-lifetime” weather events that are occurring continuously, population growth and a relentless need for design to blend form and function, panelists said at Bisnow’s Future of Houston Healthcare event last week.

Hospitals and healthcare facilities need to be resilient, Dr. Esmaeil Porsa, president and CEO of Harris Health System, said at the event Thursday at Hilton Americas-Houston. But that comes with an extra degree of difficulty given that the city has seen severe weather in the form of a devastating freeze, a derecho and a hurricane over the past four years.

“Unfortunately I don’t think that’s bad luck. I think that’s a sign of things to come,” Porsa said. “So the future hospital on our campus, the future hospitals in this country, need to be resilient.” 

Harris Health broke ground in May on a new $1.6B trauma-capable hospital outside of the Texas Medical Center. It is slated for completion in late 2028. Porsa said there will be focus on flood mitigation and designing a hurricane-resistant outer shell. 

It is important to design built-in contingencies, as priorities may change, said Audra Tiemann-Iturbe, healthcare project manager for Shah Smith & Associates. The conversations between engineers, architects and owners should start early on in the process of building a new facility, she said.

“Working with the owner based on resiliency, redundancy, what does that look like?” she said. “Decarbonization is something that’s been brought up globally. What does that look like for this facility? Is it wanted? Is it needed?” 

The new Harris Health hospital comes as Harris County has more people than recommended for its number of trauma centers. The American College of Surgeons guidelines call for at least one high-level trauma center for every 1 million people, Axios reported. Harris County has 4.8 million people and two adult Level 1 trauma centers.

Additional major health systems in the Houston area, including Memorial Hermann, MD Anderson, Texas Children’s Hospital, Houston Methodist and UTHealth, are well aware of population growth and almost constantly on the hunt for space, panelists said.

Houston saw 940K SF of medical office building absorption in the first half of the year, a 22.1% increase year-over-year, according to Colliers. This surpassed the medical office square footage delivered in the first half of the year, 815K SF, cutting the vacancy rate to 11.2%, down 50 basis points from the half-year prior and 70 basis points year-over-year.

While spreading out to serve more people, the systems are also keeping an eye on healthcare trends, such as value-based care and preventive medicine. Value-based care aims to improve a patient’s quality of care and experience while keeping costs down. 

Clinical providers need to be treated well so that they can provide the best care, and that starts with the design of a building, PhiloWilke Partnership partner Kenneth Olson said.

“We want to provide natural lighting for staff members,” Olson said. “We just recently built a staff lounge that resembles a spa.” 

It is clear when those elements aren’t involved in the design process, said Armando Colombo, president and CEO of psychiatric treatment facility The Menninger Clinic. Colombo’s wife recently went to a new lab center and asked a lab technician how he liked the new space.

“He said, ‘Well, if you like prison-gray walls, no art and crappy lighting, this is the place to be,’” Colombo said.

Designers should consider the impact a building can have on the staff, he said, including whether there is nice lighting, comfortable chairs and good food options. The impact on patients should also be considered. Geriatric patients shouldn't have to walk a significant distance from a doctor’s office to a lab, just to return for the results, Colombo said.

“None of our [psychiatric] patients eat in their room. They all come to the cafeteria where there are many, many choices,” he said. “We feel that that's a major part of people's recovery and why they will hopefully stay out of the hospital. We need to think about putting ourselves in the shoes of our patients and our staff.”

Those considerations can come up when building a new facility, moving into a former healthcare space or converting former retail into a medical office building. Speed to market and lower costs are important for healthcare providers, so second-generation space is in high demand, Transwestern Senior Vice President Lisa Bovermann said.

The last 150 deals Bovermann’s healthcare advisory services team completed averaged 4,200 SF, she said.

“They’re difficult to find and in high demand because the cost of construction, it’s extremely high and up about 40% since Covid,” Bovermann said.

Finding a second-generation space with the necessary infrastructure, whether it is a medical office building or 10-to-15-year-old clinical space, cuts the move-in time from nine to 12 months to three to four months, she said. 

“When you're taking a second-generation space, we're able to negotiate shorter-term leases, two to three years, sometimes five,” Bovermann said. “They're dipping their toe in this market to make sure it's a fit for them.”

Meanwhile, more established providers are cutting down patients’ drive times by bringing care closer to households in the suburbs, with hopes of providing more preventive care that will keep patients out of the hospital. This has increasingly led providers to consider retail centers, panelists said.

Kelsey-Seybold Clinic in 2022 launched a five-year expansion plan to place clinics no more than 10 minutes away from 95% of Houstonians. The provider has plans this year to open a 120K SF building in Cypress. Earlier this year it reopened its Fort Bend Medical and Diagnostic Center with an additional 135K SF building.

Kelsey-Seybold has taken an interest in former Best Buy and Barnes & Noble stores, Powers Brown Architecture principal Lauren Amber Prestenbach said. It plans to open a clinic this fall in a former Bed Bath & Beyond building in Upper Kirby.

Retail landlords are often fond of well-funded medical tenants that tend to sign long-term leases.

“Most retail owners in Houston are well aware that they would like a healthcare tenant … whether it’s an older property, if they have vacancy and they’re trying to lease it, or if it’s a new development,” said Chris Wadley, executive managing director for JLL.

But not every retail center will work for medical uses, he said. Parking is a particular pain point, as medical centers require more parking than the average retailer. Healthcare providers also have to consider the tenants in the rest of the development, as they can’t locate next to certain businesses like vape shops, Wadley said.

While Houston is among the top three in the nation for medical square footage under construction, 90% of the medical development over the last two years has been major health system-driven, he said. The private healthcare sector has to participate as well, and setting up shop in retail centers can be part of that, Wadley said.

Healthcare's real estate remains an essential aspect of its functionality. But the University of Texas Medical Branch is finding ways to think about facilities beyond basic brick-and-mortar, said Caryn Guajardo, UTMB associate vice president of facilities portfolio management. 

“They’re tools for branding. They’re tools for attraction and retention of talent,” Guajardo said.

Architects and designers have to “reach across the aisle” to work with the community and create spaces that will foster human connection and create better outcomes, she said.