Coy Davidson – The Tenant Advisor

ASC Disruption Is a Real Estate Story

Coy Davidson — Mon, 02 Nov 2026 20:58:30 +0000

The 10 Forces Reshaping ASCs, and What They Mean for Your Real Estate

ASCs were still one of the hottest assets in healthcare this fall. Nonprofit health systems, national operators, real estate investors, and specialty platforms all came to the table.

ASCs are growing fast as more surgeries shift to outpatient. About 10,900 ASCs operate nationally. Over 80% of surgeries are now outpatient, and ASC volume is projected to grow 24% over the next decade. Rising costs, physician shortages, and recruitment challenges are pressuring these centers to meet demand while keeping access timely.

Most people read ASC disruption as a reimbursement story. It is also a real estate story. Here are the 10 forces reshaping the industry, and what each one means for physician owners and health systems making real estate decisions.

1. Health systems are moving in.

Over the past five years, the biggest buyers in outpatient surgery have changed. Health systems that once treated ambulatory surgery centers (ASCs) as a side business are now buying national operators outright. Independent ASCs are under growing pressure to join larger organizations, because limited negotiating power with insurers and tougher competition for physicians make it harder to stay on their own.

Site-neutral policy is pulling health systems further into ambulatory surgery, and systems that hold back risk falling behind. Still, leaders noted that deals made without physician input tend to fail. Independent physicians keep real leverage, especially in orthopedics, where the autonomy and earning potential of an ASC are hard to match.

The real estate angle: A health system joint venture changes the credit profile of the tenant and the landlord conversation. Lease terms must anticipate JV partners entering later, with assignment and permitted-transfer rights built in from day one

2. Margins are won on expenses, not volume.

In markets where reimbursement is effectively fixed, more cases will not protect profitability. Labor costs are climbing sharply, so centers are tightening OR utilization, consolidating rooms, sharpening schedules and cross-training staff.

The real estate angle: Occupancy cost is one of the few fixed expenses an ASC controls at signing. Right-size the OR count to realistic utilization, and negotiate rent escalations that track the reimbursement environment, not a landlord’s pro forma.

3. Reimbursement cuts are pushing specialties to break-even.

Orthopedics, anesthesia and gastroenterology face looming cuts, with the CMS final rule expected any day. One leader compared total joint payment to the cost of a set of tires. Several specialties now only break even, and few centers will add service lines without a reimbursement incentive. Site neutrality will not deliver hospital-level rates to ASCs.

The real estate angle: Build-out cost per OR has to pencil against thinner case economics. Tenant improvement allowances, phased expansion rights and flexible shell space matter more than ever.

4. Consolidation is accelerating: partner or fade.

Capital requirements, credentialing burdens and payer pressure are pushing independent centers toward scale. Leaders see a long runway for deals, and some owners view a sale as the only path to keep the doors open. A hospital partner’s ability to shift cases into the facility ranks among the biggest benefits.

The real estate angle: Every transaction triggers lease due diligence. Change-of-control clauses, landlord consent rights, and the remaining term directly affect valuation. Owners considering a sale should clean up their lease before going to market, and evaluate whether a sale-leaseback unlocks value first.

5. The right partner matters more than the highest price.

Referral pipelines, physician autonomy and bundled services deserve as much scrutiny as the headline price. Survey red flags, poor case utilization and weak payer contracts all erode a center’s value. Post-closing transitions, like moving from paper records to an EHR, succeed or fail on staff buy-in.

The real estate angle: Know who controls the building after closing. A partner that also controls the real estate controls your rent, renewal, and relocation options. Separate the operating deal from the real estate deal and negotiate both.

6. AI is spreading fast, and the payoff depends on purpose.

Centers are deploying AI agents for payer authorization follow-ups, and some treat AI as an ancillary revenue source. Automating administrative work frees nurses for clinical care. The common misstep is automation that shifts work between people instead of eliminating it. With some centers running as many as 50 systems, leaders favor EHR-agnostic tools and measure ROI through patient volume and revenue.

The real estate angle: Automation shrinks the administrative footprint. Every square foot of back office that moves to software is a square foot you stop paying rent on, or convert to revenue-generating clinical space.

7. Culture is a financial strategy.

Physicians set the tone in every ASC, and whatever behavior leadership tolerates becomes the standard. A high performer with toxic behavior drives out colleagues, and each departure adds recruiting and replacement cost. Psychological safety is a patient safety issue.

The real estate angle: Facility quality is part of retention. Staff break space, natural light, parking, and commute access are recruiting tools in a tight clinical labor market. Site selection should weigh where your team lives, not just where your referrals come from.

8. Investors are shifting from EBITDA to durability.

The investor rush is cooling and buyers are more selective. An investment built on EBITDA alone now reads as risky. Investors are scrutinizing physician alignment and whether a center depends on a handful of CPT codes.

The real estate angle: Durability includes the real estate. A long remaining lease term, renewal options, and market-rate rent support valuation. A short lease or an above-market rent obligation is a durability risk that buyers will price in. The median ASC acquisition multiple has reached 7.9 times EBITDA.

9. Colonoscopy demand is outpacing GI capacity.

Updated screening guidelines, expanded Medicare coverage and rising colorectal cancer cases are driving colonoscopy volume up while the GI physician shortage worsens. Centers are adding advanced practice providers, and the American College of Gastroenterology launched an APP fellowship to close the training gap. Integrated networks help by routing patients to locations with shorter waits.

The real estate angle: GI is a growth specialty for endoscopy suite development. Multi-site networks that balance demand across locations need a portfolio strategy, not a series of one-off leases.

10. Advocacy wins at the state level, and only on offense.

Most legislators do not understand what an ASC is, but support turns bipartisan once they do. State lawmakers are far more reachable than CMS. Leaders advised leading with personal and family-centered stories rather than cost savings and putting physicians in front of legislators. Bills banning facility fees, the bulk of ASC revenue, are a growing threat. Connecticut’s since-repealed 6% tax on ASC gross receipts shows what happens to centers that play defense.

The real estate angle: State policy is a site selection variable. Certificate of need rules, facility fee legislation and state tax treatment all change the economics of where an ASC should locate.

Discipline Starts With the Lease

The ASC industry is entering a decade where margin is earned through discipline, not volume. Real estate is where that discipline starts. Physician owners and health systems that treat their lease as a strategic asset, rather than a signature at the end of a deal, will hold the advantage as consolidation, reimbursement pressure, and investor scrutiny intensify.

Frequently Asked Questions

How do ASC industry trends affect surgery center real estate?

Every major ASC trend shapes real estate decisions. Health system joint ventures require lease assignment rights, reimbursement cuts make build-out cost per operating room critical, and consolidation triggers lease due diligence during a sale. Investors also value long remaining lease terms and market-rate rent as signs of a durable ASC investment.

Should physician owners renegotiate their lease before selling an ASC?

Yes. Buyers review change-of-control clauses, landlord consent rights, and remaining lease term during due diligence, and each one affects valuation. A short lease or an above-market rent obligation lowers the price. Physician owners should address these terms before going to market and evaluate whether a sale-leaseback unlocks additional value first.

How should ASCs control occupancy costs when reimbursement is flat?

ASCs control occupancy costs at lease signing. That means right-sizing the operating room count to realistic utilization, negotiating tenant improvement allowances that offset build-out costs, and tying rent escalations to the reimbursement environment rather than the landlord’s projections. Flexible shell space and phased expansion rights let a center grow without paying for space it does not yet use.

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What Healthcare Occupiers Should Know About The MOB Market

Coy Davidson — Sun, 01 Nov 2026 02:04:48 +0000

High occupancy, thin supply and a wave of new ownership are changing the leverage in medical office leases. Here’s what providers need to know before their next negotiation.

Medical outpatient buildings are in high demand right now. If you’re a healthcare provider searching for space, it’s important to understand what’s fueling this trend and how it should shape your next lease negotiation. Two long-term tailwinds continue to support the MOB sector:

The ongoing shift to outpatient care
An aging population

Supply-demand fundamentals have also proven resilient through economic slowdowns, a combination that keeps attracting capital to medical office.

Occupancy is high, and it is not going anywhere.

MOB occupancy across the top 100 metros sat at 92.2% in 3Q 2026, flat from 1Q and up 10 basis points year over year. Renewal rates run above 80%. That stability is the product of tenants staying put, which means fewer blocks of quality space come back to market. When you need room to grow, you are competing for a shrinking set of options.

Demand is outrunning supply by more than two to one.

Ambulatory healthcare employment is growing about 2.4% a year. MOB inventory is growing about 1%.

New development is slowing. Construction starts fell to 17.5 million SF on a trailing 12 month basis, down from 19.3 million SF a year earlier. Completions dropped from 20.5 million SF to 15.9 million SF. From 2016 through 2022, new starts and deliveries added an average of 1.6% to inventory each year. As of 3Q 2026, deliveries over the past twelve months added just 1.0%, and starts represented only 1.1%.

High construction costs, and the rents needed to justify them, keep the pipeline thin. Limited new supply against steady demand keeps occupancy high. The space your practice needs in 2028 has to be identified and secured well before 2028.

Acuity carries a premium, and you are paying it.

High-acuity MOBs averaged $30.51/SF in 3Q 2026 versus $25.59/SF for low-acuity buildings, a spread of nearly $5/SF.

There are now 7,558 MOBs with an ASC totaling 325 million SF, with square footage growing 3.0% per year since 2020. Specialties like GI, cardiology, orthopedics, ophthalmology, pain management, and ENT are driving that growth.

If your use includes procedures, expect landlords to price your space as a premium asset. Know what share of that rent reflects your own improvements before you agree to it.

Your landlord is about to change.

Annual MOB transaction volume hit $17.6 billion as of 3Q 2026, up from $9.2 billion a year earlier. Private investors deployed $13.5 billion. REITs sold $8.6 billion and bought just over $1 billion. New owners arrive with new business plans: rent growth targets, tighter operating expense recovery, and less appetite for concessions.

A sale in your building changes the conversation at renewal. Read your lease for assignment, estoppel, and SNDA provisions now, not after the closing.

Your credit is a pricing tool. Use it.

The national MOB cap rate averaged 6.7%, steady after peaking above 7% in 2024 and 2025. The report notes cap rate compression specifically for Class A assets with strong health system credit tenancy.

Health system buyers averaged a 6.2% cap rate. Provider owners averaged 7.3%. That gap tells you exactly how much the market values a creditworthy tenant. Strong credit is leverage in lease economics, tenant improvement allowances, and sale-leaseback pricing. Too many occupiers hand that value to the owner for free.

Strategy has to start with local data.

Medical office occupancy nationally has held above 92% for three years. That headline number hides a lot of variation. The MOB markets in the following table tell very different stories about current conditions and where the growth opportunities are.

Houston is the clearest example. The metro holds 46.9 million SF of MOB inventory, the fourth largest in the country, at 88.2% occupancy. That is 400 basis points below the top 100 metro average of 92.2% and ranks 121st of the 125 markets tracked.

Does that make Houston a tenant’s market? Not really. 88.2% occupancy is not particularly soft once you look at where the vacancy sits. Most of it is in older, functionally obsolete buildings or in mature submarkets with less appeal to today’s providers. Quality space in growth corridors stays tight.

The rest of the data backs this up. Houston delivered 691,944 SF of new MOB space over the trailing 12 months, the most of any top-125 metro. Even with that much new supply, average NNN rent rose 2.7% to $26.33 and the market absorbed 499,534 SF. The window is also narrowing. Space under construction fell 33% to 826,725 SF, so the supply wave that gave occupiers more options is starting to recede. Houston is more nuanced than a single figure on a market report.

Houston MOB Market Fundamentals

What occupiers should do now

Start renewal planning 24 to 36 months before expiration, not 12.
Benchmark rent against acuity-specific comps, not general MOB averages.
Treat any building sale as a trigger to review your lease position.
Quantify the value of your credit before you sit down with an owner.
Build your strategy on your metro’s data, not the national story.

The MOB sector’s reliability is exactly why investors want it. That same reliability is why occupiers who wait end up negotiating from the weakest position in the room.

Frequently Asked Questions

Why is it harder for healthcare providers to find medical office space in 2026?

Medical office occupancy across the top 100 U.S. metros held at 92.2% in 3Q 2026, and tenant renewal rates run above 80%. When most tenants stay put, few blocks of quality space come back to market. New supply isn’t filling the gap either. Ambulatory healthcare employment is growing about 2.4% a year while MOB inventory grows about 1%, and construction starts fell to 17.5 million SF on a trailing 12-month basis. Providers that need room to grow are competing for a shrinking pool of options, so renewal and expansion planning should start 24 to 36 months before lease expiration.

How much more do high-acuity medical office buildings cost to lease?

High-acuity MOBs averaged $30.51/SF in 3Q 2026, compared with $25.59/SF for low-acuity buildings, a premium of nearly $5/SF. Demand for procedure-capable space keeps rising: there are now 7,558 MOBs with an ambulatory surgery center, totaling 325 million SF, and that square footage has grown 3.0% per year since 2020. GI, cardiology, orthopedics, ophthalmology, pain management, and ENT are driving the growth. Providers with procedural uses should benchmark rent against acuity-specific comparables and know how much of the quoted rent reflects their own tenant improvements.

Is Houston a tenant’s market for medical office space?

Not really. Houston’s 47.0 million SF MOB market sits at 88.3% occupancy, nearly 400 basis points below the national rate, with negative 205,440 SF of trailing 12 month net absorption, the weakest of the top 25 metros. Those numbers overstate the softness. Most of Houston’s vacancy sits in older, obsolete buildings or in less attractive mature submarkets, and the negative absorption reflects heavy new supply rather than weak tenant demand. About 1.5 million SF of new MOB space delivered in the Houston MSA over the last two quarters. Quality space in strong submarkets remains competitive, and absorption is likely to turn positive in the near term.

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Texas Office Market Snapshot | Q3 2026

Coy Davidson — Sat, 31 Oct 2026 01:55:56 +0000

Texas Office Markets Stabilize in Q3 2026 as Flight to Quality Continues

Texas office markets continued to stabilize in Q3 2026, as Austin, Dallas-Fort Worth, and Houston all recorded positive net absorption and tenants kept favoring higher-quality space. DFW led the state with the lowest vacancy and strongest absorption, Austin held steady despite a major new delivery, and Houston gained ground even as leasing volume slowed. Statewide, limited new construction and a sustained flight to quality supported occupancy gains and kept rents firm.

Austin (180k sf), DFW (385k sf), and Houston (12k sf) all posted positive net office absorption in Q3, supported by limited new supply and strong tenant demand for Class A space.

Austin Office Market

Austin’s office market showed ongoing resilience in Q3 2026, recording its sixth consecutive quarter of positive net absorption at 180,100 square feet even as the 730,000-square-foot Waterline delivery in the CBD pushed vacancy slightly higher to 21.1%. Overall asking rents eased to $44.14 per square foot, while Class A rents remained elevated at $53.78 per square foot. The market’s long-term outlook stays constructive, supported by continued interest from technology and innovation tenants and a relatively modest 743,300-square-foot pipeline.

Austin Office Market Report | Q3 2026

Dallas – Fort Worth Office Market

The Dallas-Fort Worth office market continued to improve in Q3 2026, with vacancy declining to 19.3% on the back of 384,500 square feet of positive net absorption. Class A assets drove most of the leasing activity, while limited new deliveries of just 40,500 square feet helped support occupancy gains. Overall asking rents held firm at $34.27 per square foot, and Class A rents reached $39.31 per square foot, reflecting sustained demand for higher-quality space amid a 3.6 million square foot construction pipeline.

DFW Office Market Report | Q3 2026

Houston Office Market

Houston’s office market stabilized further in Q3 2026 despite softer leasing volume of 2.2 million square feet. Modest positive net absorption of 12,200 square feet and a decline in availability to 26.8% pushed overall vacancy to 27.6%, while Class A assets captured roughly 70% of leasing activity and continued to outperform. Asking rents edged higher to $34.18 per square foot overall and $39.51 per square foot for Class A, with limited new construction of 232,100 square feet helping the market remain on track for a second consecutive year of positive absorption.

Houston Office Market Report | Q3 2026

Frequently Asked Questions

Q: Which Texas office market performed best in Q3 2026?

Dallas-Fort Worth led the state. DFW posted the tightest vacancy at 19.3% and the strongest net absorption at 384,500 square feet. Class A assets drove most of that leasing, and only 40,500 square feet of new deliveries kept fresh supply from diluting occupancy gains. Overall asking rents held at $34.27 per square foot, with Class A reaching $39.31.

Q: Why did Austin’s vacancy rise if the market recorded positive absorption?

New supply outpaced demand for the quarter. Austin absorbed 180,100 square feet, its sixth straight quarter of positive net absorption, but the 730,000 square foot Waterline delivery in the CBD added more space than tenants took. That pushed vacancy to 21.1%. The delivery is a one-time supply event, not a demand problem. With a modest 743,300 square foot pipeline remaining and steady interest from technology and innovation tenants, Austin’s long-term fundamentals stay constructive.

Q: What does the flight to quality mean for office tenants in Houston?

Class A space is getting more competitive. Houston captured roughly 70% of its 2.2 million square feet of leasing in Class A buildings, and Class A asking rents rose to $39.51 per square foot against $34.18 overall. Vacancy remains high at 27.6%, but that figure overstates leverage for tenants targeting top-tier buildings. With only 232,100 square feet under construction, the supply of quality space is shrinking. Tenants seeking Class A space should start early and negotiate before options narrow further.

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Select Markets Drive U.S. Office Market Recovery

Coy Davidson — Thu, 29 Oct 2026 19:24:33 +0000

U.S. Office Market Outlook Report | Q3 2026

The Office Market Didn’t Recover. It Split in Two.

The headline numbers say the U.S. office market is healing. Vacancy is falling, absorption is positive and sublease space keeps shrinking. All true. But occupiers who read “recovery” and expect leverage to follow will be surprised. The Colliers Q3 2026 U.S. Office Report shows a market where the best buildings are tightening fast and everything else is being left behind.

Key Findings

The U.S. office vacancy rate declined to 17.7% in Q3 2026, down 20 basis points quarter-over-quarter and 60 basis points year-over-year, marking the lowest level since Q4 2023.
Net absorption totaled 9.5 million square feet during Q3 2026, extending a streak of positive absorption to nine consecutive quarters.
Total available U.S. office sublease space fell to 150.9 million square feet, down 15.8% year-over-year and marking the 12th consecutive quarter of decline.

Demand is back, and it is accelerating

Net absorption was positive for the ninth straight quarter. The U.S. absorbed 9.5M SF in Q3 and 32.8M SF year to date, with full-year 2026 projected above 40M SF. Trailing twelve-month absorption hit 39.0M SF, up from 13.4M SF a year ago and negative 39.5M SF two years ago. That is a 78.5M SF swing in 24 months.

Over the next six months, the U.S. office market is expected to build on the modest momentum established throughout 2026.

Vacancy is at its lowest point since late 2023

National vacancy fell 20 basis points over the quarter to 17.7%, down 60 basis points year over year. Colliers expects it to approach 17.5% by year end.

High-quality and well-located office spaces, particularly Class A and trophy assets, are experiencing strong leasing activity, rising rents, and higher occupancy across major tech hubs such as San Francisco, New York, Boston, and Seattle. Demand is primarily driven by two occupier imperatives: advanced digital connectivity and AI-ready infrastructure. By contrast, older, less competitive, or commodity office spaces continue to struggle with high vacancies and weaker demand, widening the performance gap.

The construction pipeline has nearly disappeared

New office construction and renovation activity have plummeted to historically low levels due to soaring construction costs and elevated borrowing rates.

Only 26.4M SF is under construction nationally, down from 46.4M SF two years ago. Year-to-date deliveries of 7.7M SF are the lowest nine-month total since the Great Financial Crisis. More than 70% of markets have delivered zero new space in 2026. New starts require significant preleasing because construction costs remain high.

Sublease space is shrinking, but the overhang remains

Total available sublease space in the U.S. office market continued to decline in Q3 2026, for the 12th consecutive quarter, to 150.9M SF. Sublease availability fell 1.4% quarter-over-quarter and 15.8% year-overyear, extending the steady recovery from the record high of 177.1M SF in early 2021. While the pandemic-era sublease space overhang continues to subside, current levels remain approximately 25% above the previous cycle peak during the Global Financial Crisis.

Rents are rising where it matters

The national average asking rent rose 2.1% year over year to $38.15/SF full service. Class A held at $43.83/SF, up 2% from last year. The Class B average rate of $31.37 per square foot was 0.3% up from last quarter and 2.1% higher than last year.

Suburban rents climbed 0.7% over the quarter to $32.48/SF while CBD rents slipped 0.4% to $48.04/SF. Colliers notes rising tenant improvement costs alongside rent growth in top-tier assets.

Technology is now a baseline requirement

Roughly 60% of senior decision-makers will not lease space that isn’t AI-ready or can’t support future technology needs. Power capacity, connectivity and building systems now sit on the same list as location and parking.

Capital markets are creating openings for owner-users

The 10-year Treasury’s return to 5% continues to pressure valuations. Office CMBS delinquency reached 12.2% in September, downtown office prices are 43% below pre-COVID levels and cap rates are near their highest since 2011. Owner-users, including hospitals, universities, companies and governments, have been net buyers for six straight quarters, acquiring about $3 billion in the first three quarters of 2026.

What This Means for Occupiers

The leverage window is closing in quality space. With almost no new construction, tenants in Class A buildings have fewer relocation alternatives, and landlords know it. Renewals in top-tier assets will get more expensive, and concession packages will tighten.

The opportunity sits in two places. Commodity and older buildings still carry high vacancy, and owners there will negotiate aggressively to retain occupancy. And distressed pricing has made ownership a real option for organizations that plan to stay put, which is exactly why hospitals and other institutions keep buying.

The strategy is simple: start early, know your alternatives before the landlord does, and evaluate lease versus own before your options narrow.

A Note on Houston

Houston posted 27.3% vacancy, the second highest among major markets. Houston tenants still hold meaningful leverage, but the gap between trophy towers and commodity space is widening here too. The year-to-date absorption numbers make the divide impossible to ignore:

Class A: +821,397 SF
Class B: (-756,702) SF
Class C: (-89,661) SF

Mirroring the national office market, Houston’s office market is not one market. Quality space is tightening, rents are rising, and the supply pipeline has gone quiet.

Frequently Asked Questions

If office vacancy is still 17.7%, why are tenants losing leverage?

Because the national average hides a split market. Vacancy is concentrated in older, less competitive buildings, while the best space keeps tightening. Only 26.4M SF is under construction nationally, deliveries this year are the lowest since the Great Financial Crisis, and more than 70% of markets have had no new space delivered in 2026. Tenants who want quality space have fewer alternatives every quarter, and landlords in those buildings are pricing renewals accordingly. Leverage still exists, but mostly in commodity buildings where owners need occupancy.

When should a tenant start planning for a lease expiration in this market?

Earlier than the last cycle trained you to. With a thin construction pipeline and sublease space down 15.8% year over year, the cheap and fast options are disappearing. New projects require significant preleasing, so a tenant who needs a new building or a major buildout must commit well ahead of expiration. A practical rule: start 24 to 36 months out for larger or specialized requirements, and 18 months out for standard office space. Starting early lets you build real alternatives before your landlord knows your timeline.

Does it make sense to buy instead of lease right now?

For organizations with long-term commitment to a location, it deserves a serious look. Downtown office prices are 43% below pre-COVID levels, cap rates are near their highest since 2011, and distressed sales are trading at significant discounts. Owner-users, including hospitals, universities and corporations, have been net buyers for six straight quarters, acquiring about $3 billion this year. The tradeoff is higher borrowing costs with the 10-year Treasury at 5%, plus capital expenditure risk on older assets. A lease versus own analysis should weigh occupancy cost, control of the space, capital requirements and exit flexibility. I’m not a financial advisor, so run the numbers with your finance team and lender before committing.

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Houston Office Isn’t Recovering. It’s Splitting in Two

Coy Davidson — Sat, 17 Oct 2026 17:39:49 +0000

Houston Office Market: Why Class A Demand Is Rising While Class B Vacancies Grow

A flat vacancy rate looks like a market standing still. Houston’s office vacancy sits at 27.6%, unchanged from last quarter and unchanged from a year ago. Read only that number and you miss the quarter.

Underneath the headline, Houston is running two different office markets. One is tightening fast. The other is still losing tenants. Your leverage depends entirely on which one you are shopping in.

Here is what the Colliers Q3 2026 Houston Office Report shows.

The Numbers That Matter

Availability is falling. Overall availability dropped to 26.8%, down 190 basis points from Q2 and 210 basis points year over year. Space is coming off the market even while vacancy holds steady.

Leasing slowed. Tenants signed 2.2 million SF in Q3, down 12.0% from Q2 and 23.7% from Q3 2025. Small and mid-sized deals drove the volume. The largest lease of the quarter was Harris County Flood Control District at 86,743 SF at 4425 Westway Park Blvd in the West Belt.

Absorption barely registered. Net absorption came in at roughly 12,200 SF for the quarter.

Rents keep climbing. Average asking rent reached $34.18 per SF full service gross, up from $33.15 last quarter and $32.13 a year ago. That is a 6.4% annual increase in face rent.

The pipeline is nearly empty. Zero SF delivered in Q3. Only 232,100 SF remains under construction, down from 777,900 SF a year ago. Total inventory shrank by roughly 700,000 SF over the past year.

The Split: Class A vs. Everyone Else

The year-to-date absorption numbers make the divide impossible to ignore:

Class A: +821,397 SF
Class B: (-756,702) SF
Class C: (-89,661) SF

Class A captured more than 70% of all leasing activity in Q3. Premier Class A buildings now run 12.5% vacancy and 16.8% availability, less than half the market average.

The rent gap reflects it. Class A asks $39.51 per SF. Class B asks $22.38. That $17 spread is the price of quality in Houston right now.

Submarkets Worth Watching

Katy Freeway East is the tightest Class A market in the city. Class A availability sits at 7.2%, asking rents average $62.38 per SF, and the submarket absorbed 533,303 SF of Class A space year to date, including 324,450 SF of new deliveries.

The Woodlands posted 14.0% vacancy and 146,228 SF of positive absorption year to date. Class A rents average $44.75 per SF.

West Loop Class A absorbed 312,569 SF year to date, making it one of the strongest Class A performers in the market.

Katy Freeway West/Energy Corridor led the city in leasing with more than 310,000 SF signed in Q3, about 14% of all Houston activity. Activity is not growth. The submarket still sits at (399,724) SF of net absorption year to date, driven by Class B losses.

The CBD and Greenway Plaza remain under pressure. The CBD posted 32.8% vacancy and (264,988) SF of absorption year to date. Greenway Plaza lost 305,012 SF year to date.

FM 1960 and North Belt both carry vacancy above 44%.

Capital Is Coming Back

Investors bought more than $1.1 billion of Houston office in Q3, pushing year-to-date volume past $3.0 billion. That already nearly matches all of 2025.

The headline deal: Williams Companies acquired Williams Tower for more than $300 million, one of the largest Houston office sales since 2019. Institutional buyers accounted for about 53% of acquisition volume this year.

New ownership means recapitalized buildings. Recapitalized buildings can fund tenant improvements that distressed owners could not.

5 Takeaways for Occupiers

1. Know which market you are in. A tenant targeting premier Class A in Katy Freeway East or The Woodlands negotiates in a landlord’s market. A tenant open to well-located Class B negotiates in a tenant’s market. Same city, opposite leverage.

2. Negotiate net effective rent, not face rent. Asking rents rose 6.4% year over year, yet concessions keep net effective rents below face. Free rent and TI allowances are where the real deal gets made.

3. Do not wait for new supply. With 232,100 SF under construction and zero deliveries this quarter, no wave of new buildings is coming to soften top-tier pricing. Every quarter of Class A absorption shrinks your options.

4. Start early on renewals in tight submarkets. If your lease expires in 2028 or 2029 and you occupy premier space, your landlord already knows availability is drying up. Start the process 24 to 36 months out.

5. Use the ownership turnover. Buildings trading to institutional capital often come with fresh budgets for capital improvements and tenant packages. Ask who owns the building and when they bought it. The answer shapes your negotiation.

Houston’s office market is not one market. Quality space is tightening, rents are rising, and the supply pipeline has gone quiet. Commodity space still offers meaningful leverage. Occupiers who understand that split will make better real estate decisions than those reading only the vacancy rate.

Frequently Asked Questions

1. Why is Houston’s office market splitting between Class A and Class B buildings?

Houston’s office market is splitting because tenants are concentrating demand in higher-quality Class A buildings while Class B properties continue to lose occupied space. Through Q3 2026, Class A recorded 821,397 square feet of positive net absorption, while Class B recorded 756,702 square feet of negative net absorption. Premier Class A buildings had a 12.5% vacancy rate, compared with 27.6% across the overall Houston office market. This divide means tenants face tighter options in premier properties but retain greater negotiating leverage in many Class B buildings.

2. How can tenants negotiate a better office lease in Houston’s divided market?

Tenants can negotiate a better Houston office lease by comparing buildings within their target submarket and focusing on net effective rent rather than asking rent alone. Free rent and tenant improvement allowances can materially affect the economics of a lease. Well-located Class B buildings may offer stronger negotiating leverage, while premier Class A properties in Katy Freeway East and The Woodlands offer fewer alternatives. Tenants occupying premier space in tight submarkets should begin evaluating renewal and relocation options 24 to 36 months before their lease expires.

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Healthcare Real Estate Is No Longer a Support Function

Coy Davidson — Thu, 15 Oct 2026 20:43:09 +0000

Top Trends Shaping Healthcare Real Estate

For decades, health systems treated real estate as overhead. Buildings housed the care. The care was the strategy. That model is finished.

Colliers hosted its National Healthcare Conference in Boston on October 7 through 9, bringing together providers, investors, developers, and industry experts. Across every panel and every hallway conversation, one message came through clearly: healthcare real estate is no longer a support function. It is now a growth lever, a revenue source, and a competitive weapon.

The forces driving that shift are converging at once. Outpatient migration, creative capital, reimbursement pressure, workforce shortages, and an aging population are all pushing real estate decisions into the boardroom. Here is what that means and how occupiers should respond.

Five Takeaways from Boston

1. Health systems are becoming real estate operators.

Outpatient growth remains the top priority, and health systems are pursuing it with the tools of a developer. Joint ventures, land banking, and mixed-use projects are now standard plays for driving growth and creating new revenue streams. At the same time, hospitals keep investing in their campuses through destination-campus strategies, new patient towers, children’s hospitals, and modernization projects in high-growth markets. The ambulatory network and the flagship campus are being built in parallel.

2. Patient access now drives site selection.

Care is moving to where patients live, work, and shop. That makes outpatient and ambulatory facilities the primary growth engine and reduces reliance on the traditional hospital campus. Demographics alone no longer settle a site decision. Accessibility, parking, visibility, and provider convenience carry equal weight, and a location that fails on any of them fails.

3. Capital is abundant, but quality assets are not.

Investors remain committed to healthcare real estate. Ample equity and debt capital are chasing a limited supply of quality assets, and transaction activity continues despite rate volatility as buyers and sellers adapt to a higher-for-longer environment. To overcome supply constraints, investors are turning to development: new outpatient facilities, inpatient rehabilitation hospitals, freestanding emergency departments, and other higher-acuity outpatient properties. On the provider side, large philanthropic gifts, strategic partnerships, and joint ventures are filling more of the funding gap.

4. Reimbursement pressure is forcing discipline.

Healthcare finances have largely returned to pre-pandemic levels, but the structural problems remain. Federal efforts to address rising debt will keep pressure on government reimbursement. Medicaid funding cuts and stricter eligibility requirements will hit safety-net, urban, and rural hospitals hardest. The loss of Affordable Care Act marketplace subsidies is growing the uninsured population and reducing elective procedure volumes. Add CON reform and heightened scrutiny of healthcare transactions, and the result is clear: every square foot must justify itself. Providers are modernizing, consolidating, repurposing, and optimizing their portfolios accordingly.

5. Workforce is the new limiting factor.

Demographics remain a powerful tailwind, with the 65+ population set to grow substantially over the next decade. Demand is not the problem. Staffing is. An aging workforce, lower labor participation, reduced immigration, and growing physician and nurse shortages mean a facility in a high-demand market can still fail if it cannot be staffed. Workforce availability now belongs on the site selection scorecard next to population growth and payer mix. Meanwhile, interest rates are likely to stay elevated with inflation above target, and a bifurcated economy is widening the gap between higher-income consumers and those under financial strain.

What This Means for Healthcare Occupiers

When landlords and investors have more capital than product, the occupier’s leverage depends on preparation. Here is how providers and health systems should act on what Boston made clear.

1. Treat real estate as a strategic plan, not a transaction list. Map every location against your growth markets, service line strategy, and capital plan. Lease expirations should be decision points, not deadlines.

2. Score sites on access and workforce, not just demographics. Add parking, visibility, drive times, provider convenience, and local labor supply to your site selection criteria. A strong population profile cannot rescue a location you cannot staff.

3. Rationalize before you expand. Audit utilization across the portfolio. Consolidate underperforming space, repurpose what can be repurposed, and fund growth with the savings.

4. Start early in a supply-constrained market. Quality outpatient space is scarce and investors are competing for it. Begin renewal and relocation planning 24 to 36 months out so build-to-suit, development, and joint venture options remain on the table.

5. Use the capital markets to your advantage. Investor appetite for healthcare assets creates opportunity for owner-occupiers. Sale-leasebacks, development partnerships, and joint ventures can unlock capital for clinical priorities while keeping control of critical locations.

6. Protect flexibility in your lease terms. Reimbursement and regulatory uncertainty will continue. Negotiate expansion and contraction rights, assignment provisions for transactions, and renewal options that preserve your ability to adapt.

Real Estate Is Now a Strategic Decision

The organizations that win the next decade of healthcare delivery will be the ones that treat real estate as strategy. Access, capital, cost, and staffing all run through the real estate decision now. Providers that plan early, negotiate from a position of knowledge, and align every location with their growth strategy will turn real estate into a competitive advantage. Those that do not will find the market has already moved past them.

Source: Colliers Knowledge Leader, key takeaways from the 2026 Colliers National Healthcare Conference, Boston, October 7 to 9, 2026.

Frequently Asked Questions

Why are health systems shifting real estate investment from hospital campuses to outpatient facilities?

Health systems are shifting investment to outpatient facilities because patients want care closer to where they live, work, and shop, and ambulatory settings deliver that care at lower cost. Outpatient and ambulatory facilities are now the primary growth focus for providers, reducing reliance on the traditional hospital campus. Regulatory changes and the expansion of ambulatory care delivery continue to accelerate this migration. Health systems still invest in flagship campuses in high-growth markets, but outpatient networks are where patient access, market share, and revenue growth are won.

How should healthcare executives factor workforce shortages into site selection?

Healthcare executives should treat workforce availability as a core site selection criterion, equal in weight to demographics and payer mix. An aging workforce, lower labor participation, reduced immigration, and growing physician and nurse shortages mean a facility in a high-demand market can still underperform if it cannot be staffed. Strong site analysis now evaluates local labor supply, commute patterns for clinical staff, proximity to training programs, and provider convenience alongside population growth. Demand alone does not support growth. Staffing capacity does.

How can healthcare occupiers gain leverage when investors are competing for limited medical office space?

Healthcare occupiers gain leverage by starting early, knowing their alternatives, and using investor demand to their advantage. Ample equity and debt capital are competing for a limited supply of quality healthcare assets, which tightens availability for tenants. Providers that begin renewal and relocation planning 24 to 36 months before expiration keep build-to-suit, development, and joint venture options open. Owner-occupiers can also use strong investor appetite to execute sale-leasebacks, unlocking capital for clinical priorities while retaining control of critical locations. Engaging an experienced healthcare tenant representation advisor early ensures these options are evaluated before the market narrows them.

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Colliers Healthcare Services Report | Q3 2026

Coy Davidson — Wed, 07 Oct 2026 02:29:48 +0000

Physician Practices in Transition: Consolidation, Capital, and the Future of Healthcare Delivery

The independent physician practice is no longer the default tenant in medical office. That shift already happened. What the market has not absorbed yet is what it means for how space gets leased, owned, and underwritten.

Colliers’ Q32026 Report, Physician Practices in Transition: Consolidation, Capital, and the Future of Healthcare Delivery, lays out the numbers. The share of physicians in private practice fell from 60.1% in 2012 to 42.2% in 2024. By 2022, roughly 74% of physicians were employed by a hospital system or corporate entity. Between 2019 and 2022, corporate ownership of practices grew nearly 10 times faster than hospital ownership.

Read that last figure again. The fastest-growing decision maker in physician real estate is not the health system. It is private equity, insurers, and multi-practice corporate platforms. They evaluate space differently, commit differently, and leave differently.

Why Physicians Are Selling

The report is direct about cause. Inflation-adjusted Medicare physician payments dropped 33% from 2001 to 2025. Practice costs rose 3.5% in 2025 alone while Medicare cut another 2.8%. Among physicians who sold in the last decade, 70.8% cited inadequate payment rates as an important reason, and 64.9% cited the need for access to capital and resources.

This is not a cyclical squeeze. It is a structural one, and it falls hardest on the physician nearing retirement. More than 40% of active physicians will reach 65 within ten years. For many of them, a sale is the only realistic exit, and the buyer is increasingly a platform rather than a younger partner.

Meanwhile, demand keeps climbing. The 65 and older population is projected to grow 39% between 2020 and 2035, and the 75 and older cohort by 74%. Fewer independent physicians, more patients, and more capital chasing the gap. That combination guarantees consolidation continues.

Where the Capital Is Going

Physician medical groups accounted for a record 46% of first-quarter 2026 healthcare deal volume, up from 37% a year earlier. PE groups were responsible for 65% of physician practice acquisitions from 2019 to 2023. Many platforms have completed more than five acquisitions; some have completed 20.

The target list is telling: dermatology, ophthalmology, gastroenterology, and primary care. These are office-based, procedure-heavy, fragmented specialties. In other words, they are medical office tenants. Every roll-up in those specialties is a real estate event, whether or not anyone treats it like one at closing.

The report also notes growing selectivity. Deal counts are falling while capital stays concentrated in assets with strong margins and scalable operations. Buyers are writing fewer checks and taking longer to do it. That discipline will show up in how they approach occupancy costs.

What This Means for Real Estate

The report’s implications section covers demand for larger, technology-enabled space, standardized layouts, and MSOs as a distinct occupier class. All accurate. Here is how it plays out on the ground.

1. The decision maker moves upstream. When a practice sells, the physician who signed the lease rarely controls the next renewal. An MSO or platform real estate team does, often from another city, with a portfolio view and a cost target. Landlords who built relationships with individual doctors will find those relationships matter far less than they assumed.

2. Hold periods and lease terms are misaligned. PE operates on a 3 to 7 year holding period. Medical office leases with heavy tenant improvements typically run 10 years or longer. That mismatch will define negotiations over the next cycle. Expect platforms to push for shorter initial terms, assignment rights that survive a sale, early termination options, and portfolio-level flexibility to consolidate or exit locations. Landlords will push back with credit requirements and guaranties. Whoever understands the platform’s exit timeline holds the leverage.

3. Credit gets harder to read. A 15-location PE-backed dermatology platform looks stronger than a single independent practice. It may not be. The platform’s balance sheet often carries acquisition debt, and the report shows real operating risk: PE-acquired ophthalmology practices saw a 265% increase in physician turnover within three years, and only 44% of physicians at PE-owned practices remained two years post-sale compared with 60% at non-PE practices. Physicians generate the revenue that pays the rent. When they leave, a location can go dark under a lease that still has years to run. Owners underwriting these tenants need to look past the logo.

4. MSOs need office space, not clinic space. Billing, HR, IT, marketing, and facilities management get centralized when practices consolidate. That work lands in conventional office buildings, separate from patient-facing clinics. This is a real and growing occupier segment that general office brokers and landlords mostly overlook because it does not look like healthcare.

5. Standardization changes what “good space” means. Consolidated platforms want repeatable layouts, efficient patient flow, adequate IT infrastructure, and supply logistics that work across dozens of sites. A one-off buildout designed around a single physician’s preferences is now a liability at renewal or resale. Buildings that can accommodate a prototype will lease. Buildings that require custom solutions will discount.

6. The footprint splits in two directions. Platforms will aggregate into larger hub facilities for multi-specialty and procedural care while also adding smaller community locations close to patients. The middle, a mid-sized standalone practice in an aging building, is where vacancy risk concentrates.

What Occupiers Should Do Now

Physician groups considering a sale should treat real estate as a deal term, not an afterthought. Lease assignment provisions, personal guaranties, and any ownership interest in the building directly affect valuation and post-closing liability. Physicians who own their real estate have a separate asset to negotiate, and a sale-leaseback negotiated before the practice transaction often produces a better outcome than one forced after it.

Platforms acquiring practices should audit inherited leases immediately. Expiration dates, renewal options, relocation rights, and assignment restrictions across a newly assembled portfolio usually reveal both risk and opportunity. Consolidating three underperforming sites into one well-located hub is often the fastest margin improvement available.

Health systems competing against these platforms need to recognize who they are bidding against for the same space. Corporate buyers move quickly and price occupancy as an operating expense to be optimized. Systems that still treat site selection opportunistically will lose good locations to buyers with a plan.

Underwrite the Platform

Consolidation is not a trend to monitor. It has already rewritten the tenant roster in medical office. The occupiers that win will be the ones that align real estate commitments with their actual ownership horizon and operating model. The owners that win will be the ones that underwrite the platform, not just the building.

Frequently Asked Questions

How does physician practice consolidation affect medical office leasing?

Physician practice consolidation shifts lease decisions away from individual doctors and toward private equity platforms, management services organizations (MSOs), and health systems that manage real estate at the portfolio level. According to Colliers’ Q3 2026 report, the share of physicians in private practice fell from 60.1% in 2012 to 42.2% in 2024, and corporate ownership of practices grew nearly 10 times faster than hospital ownership between 2019 and 2022. Because PE firms typically hold practices for 3 to 7 years while medical office leases with significant tenant improvements often run 10 years or longer, consolidated tenants increasingly negotiate for shorter initial terms, assignment rights that survive a sale, early termination options, and the flexibility to consolidate or exit locations across a portfolio.

What should physicians consider about their real estate before selling a practice to private equity?

Physicians should treat real estate as a negotiated deal term rather than closing paperwork, because lease assignment provisions, personal guaranties, and building ownership all affect practice valuation and post-sale liability. A physician who signed a personal guaranty may remain liable for rent after control of the practice passes to the buyer unless the guaranty is released or replaced as part of the transaction. Physicians who own their medical office building hold a separate asset, and a sale-leaseback negotiated before the practice sale typically produces better pricing and lease terms than one arranged afterward, when the buyer already controls the occupancy decision.

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Stop Opening Clinics. Start Building Networks.

Coy Davidson — Wed, 07 Oct 2026 00:00:21 +0000

Build the Network First: Why Outpatient Growth Demands Flexible Facilities

Some health systems do not have an outpatient strategy. They have an outpatient collection.

A clinic opened because a building came available. An imaging center signed because a physician group pushed for it. A surgery center placed where the land price was attractive. Each decision made sense on its own. Together, they form a portfolio that is expensive to run, confusing for patients, and poorly positioned for what comes next.

And what comes next is significant. Outpatient volume is projected to grow 20% over the next decade, compared with 7% for inpatient discharges. Systems that keep adding sites one at a time will spend more capital and capture less of that growth than systems that plan the network first.

Here is the framework.

Plan the network before the building. The first question is not “Where should our next clinic go?” It is “Which markets and services must we serve over the next 10 to 20 years?” That answer comes from patient-origin data, market growth, travel patterns, specialty demand, physician supply, and competitive conditions. The building is the last decision, not the first.
Match the site model to the service. Not every service line belongs in every neighborhood. Primary care performs best when it is broadly distributed and close to home. Oncology, orthopedics, and ambulatory surgery perform best as larger regional hubs or centers of excellence. Treating them the same produces either underused specialty space or overcrowded primary care.
Define convenience the way patients do. Proximity is only part of it. Patients judge convenience by parking, fast scheduling, short waits, easy navigation, and diagnostics on site. Multi-service outpatient centers that combine physician visits, imaging, labs, and procedures remove friction from the entire patient journey. One trip beats three.
Standardize operations across every location. A distributed network only works when it runs like one system. Common scheduling, repeatable clinic layouts, shared support resources, coordinated staffing, and clear referral pathways make the network easier to operate and easier for patients to use.
Separate what is permanent from what can wait. Some investments are nearly impossible to change later: floor-to-floor height, structural load capacity, mechanical, electrical, and plumbing capacity, parking, and utilities. Get those right up front. Interior buildout and service additions can be phased as demand becomes clear. Flexibility is a capital strategy, not a design afterthought.
Follow the right sequence. Market demand. Services. Operations. Capital. Design. Systems that reverse this order end up forcing clinical operations into a predesigned box. Systems that follow it get facilities built around how care is actually delivered.

Where to Start

Build a portfolio map and scorecard of every outpatient site you control. Measure utilization, volumes, service mix, patient origin, market growth, and strategic importance. That analysis tells you what belongs close to patients, what belongs concentrated on the acute-care campus, and which sites no longer earn their place in the network.

The Real Estate Implication

This is where occupier decisions get made or lost. A system with a clear network plan negotiates from strength: it knows which locations are core, which are flexible, and which are exit candidates. It can structure lease terms, expansion rights, and building specifications around a 10- to 20-year view instead of reacting to whatever space is available this quarter.

In a medical office market with high occupancy and a thin construction pipeline, that discipline is the difference between securing the right sites and settling for the leftover ones.

Network first. Buildings second.

Frequently Asked Questions

What is an outpatient network strategy for health systems?

An outpatient network strategy is a plan that determines which markets, services, and site types a health system needs over a 10 to 20 year horizon before it commits to any individual building. Instead of adding clinics, imaging centers, or ambulatory surgery centers one at a time as opportunities appear, the system uses patient-origin data, market growth, travel patterns, specialty demand, physician supply, and competitive conditions to design a connected portfolio. With outpatient volume projected to grow 20% over the next decade compared with 7% for inpatient discharges, health systems that plan the network first spend capital more efficiently and capture more of that growth.

How should health systems decide which outpatient services to centralize and which to distribute?

Health systems should match the site model to the service line. Primary care performs best in broadly distributed locations close to where patients live. Oncology, orthopedics, and ambulatory surgery perform best in larger regional hubs or centers of excellence that concentrate specialists, equipment, and procedural capacity. The starting point is a portfolio scorecard of every outpatient site, measuring utilization, volumes, service mix, patient origin, market growth, and strategic importance. That analysis shows what belongs near patients, what belongs on the acute-care campus, and which sites no longer justify their cost.

What makes an outpatient medical facility flexible enough to support future growth?

A flexible outpatient facility gets the permanent elements right at the start and phases everything else. Floor-to-floor height, structural load capacity, mechanical, electrical, and plumbing capacity, parking, and utilities are difficult and expensive to change later, so they should be sized for future services such as imaging or procedures. Interior buildout and service additions can then be phased as demand becomes clear. For health systems leasing medical office space, flexibility also means negotiating expansion rights, renewal options, and building specifications that align with a long-term network plan, which matters more in a medical office market with high occupancy and limited new construction.

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Houston Medical Office Market: Vacancy, Rents, and Investment Trends

Coy Davidson — Tue, 15 Sep 2026 17:53:28 +0000

Houston Medical Building Market Report | 2026 First Half

Houston’s medical office market delivered a resilient performance in the first half of 2026, absorbing a historic wave of new supply while continuing to push rents higher. For physician groups, healthcare systems, and healthcare real estate investors, the data points to a market where landlords still hold pricing power.

Net Absorption Stays Positive Despite a Rough Q2

The Houston medical office market closed H1 2026 with net absorption of 296,087 SF, a 6.2% increase over the same period in 2025. That’s notable given the market recorded negative net absorption in the second quarter alone. The full-half figure ranked Houston No. 4 among the top 50 U.S. metros for year-over-year net absorption, and Houston posted the second-highest volume of medical office deliveries among those same top 50 metros.

Vacancy Ticks Up as New Supply Hits the Market

Overall vacancy rose to 11.7%, a 30-basis-point increase from year-end 2025’s 11.4%. New deliveries totaled 489,551 SF, up 55.9% compared to the second half of 2025. As those projects came online, the under-construction pipeline fell to 850,521 SF, down sharply from 1.25 million SF six months earlier and 1.425 million SF a year ago.

That declining pipeline matters. Less space in the ground means less competition for tenants down the road, and it’s one reason rents haven’t softened despite higher vacancy today.

Rents Continue Their Upward Climb

Average asking NNN lease rates reached $25.34 PSF in H1 2026, up from $25.14 at year-end 2025 and $24.62 in H1 2025. Rising rents alongside rising vacancy is a signal worth paying attention to: it suggests landlords are absorbing new supply through genuine demand rather than concessions, and that pricing power currently sits with ownership, not tenants.

Investment Sales Volume Jumps 59%

Medical office sales volume topped $230 million through H1 2026, a 59% increase over the same period last year. The average sales price per square foot climbed to $306, continuing an upward trend visible across recent quarters.

Recent notable transactions include:

MedPlace (170,554 SF) — Medical Properties Trust acquired from Healthpeak Properties, June 2026
Greenhouse Medical Plaza (116,870 SF) — Edloe Ventures acquired from Transwestern Real Estate Services, March 2026
Bellaire Medical Plaza (57,988 SF) — Edloe Ventures acquired from Rycore Capital, May 2026
Memorial Hermann Convenient Care Center (44,000 SF) — Memorial Hermann Health System acquired from Inland Private Capital Corporation, January 2026

The consistent buyer activity from both institutional (Medical Properties Trust) and regional (Edloe Ventures) players signals broad-based confidence in the asset class.

Life Science Sector Gains Real Momentum

Houston remains an emerging life science market relative to established hubs, but H1 2026 brought a headline commitment: Bristol Myers Squibb announced a $2.3 billion investment in a 600,000-square-foot manufacturing campus at Generation Park, the second major pharmaceutical manufacturing investment at that location within the past year.

Houston’s life science inventory now totals approximately 5.0 million SF, with an additional 1.4 million SF under construction, a pipeline representing 27% of existing inventory and underscoring the sector’s growth trajectory.

Key Developments to Watch

Memorial Hermann has two facilities under construction: a 51,800 SF building in Mont Belvieu (completing November 2026) and a 51,000 SF medical office/freestanding ER in Bridgeland (completing December 2026)
Houston Methodist opened a 65,580 SF facility at 6601 Cinco Rose Dr in Katy, TX

What This Means for Healthcare Real Estate Decisions

For physician groups and healthcare systems evaluating lease renewals, expansions, or new market entry, the data points to a narrowing negotiating window. Vacancy is rising, but the pipeline that would eventually create tenant leverage is shrinking, not growing. Groups with near-term real estate decisions should engage now, while multiple existing and under-construction options remain, rather than waiting for a supply correction that current construction data doesn’t support.

Source: Colliers H1 2026 Medical Building Report, Houston.

Frequently Asked Questions

What is the vacancy rate for medical office space in Houston in 2026? Houston’s medical office vacancy rate reached 11.7% in the first half of 2026, up 30 basis points from 11.4% at year-end 2025. Despite the increase, vacancy remains below the 11.5% mark recorded in the first half of 2025, and asking rents have continued to rise alongside it.

Are medical office rents in Houston going up or down? Medical office rents in Houston are rising. Average asking NNN lease rates reached $25.34 per square foot in the first half of 2026, up from $25.14 at year-end 2025 and $24.62 in the first half of 2025. Rents have increased even as new supply entered the market, indicating sustained tenant demand.

How much medical office investment sales activity happened in Houston in 2026? Houston recorded more than $230 million in medical office sales volume through the first half of 2026, a 59% increase over the same period in 2025. The average sales price reached $306 per square foot. Notable transactions included the 170,554-square-foot MedPlace building, acquired by Medical Properties Trust, and Greenhouse Medical Plaza, acquired by Edloe Ventures.

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How to Effectively Negotiate a Commercial Office Lease

Coy Davidson — Sat, 05 Sep 2026 04:15:39 +0000

Start early, model the whole cost, and make landlords compete

Negotiating a commercial office lease is not mainly about arguing down the asking rent. It is about creating leverage, modeling total occupancy cost, and locking in flexibility before the clock runs out. Start 12 to 18 months before expiration, know your comps, and put a tenant advocate across the table from the landlord’s team.

Finding the space is the easy part. Most tenants lose ground in the negotiation itself, often without noticing until year three of the lease.

After more than thirty years representing occupiers in Houston and across the country, I can tell you this plainly: the tenants who get strong outcomes are not the ones who push hardest on day one. They start early, create real competition among landlords, and negotiate the clauses that never show up on the first proposal page.

What “negotiating” actually means

A commercial lease is not a standard form. It is a long-term financial instrument covering base rent, escalations, operating expenses, tenant improvement allowances, free rent, renewal and expansion rights, sublease and assignment, restoration, guarantees, and default remedies, often over three to ten years.

The landlord’s leasing agent does these deals every day. Most tenants do one every five to ten years. That imbalance is the entire problem. Your job is not to match their experience overnight. It is to put equivalent expertise, market data, and process discipline on your side of the table.

1. Start 12 to 18 months before you need a deal.

Time is leverage. Begin evaluating your lease and the surrounding market well before expiration, ideally 12 to 18 months out for a standard office renewal or relocation and for larger, more complex projects 24-36 months out.

That runway lets you:

Confirm whether your current footprint still fits how the company actually works
Tour alternatives without panic
Run a stay versus go analysis with real proposals from competing landlords
Walk into renewal talks with credible options, not a calendar crisis

Waiting until the final few months does not save time. It hands negotiating power to the landlord, who can see that your relocation clock is running out.

2. Right-size the requirement before you tour.

Do not start with listings. Start with what you actually need.

Define current and projected headcount, hybrid patterns, meeting-room demand, and growth or contraction scenarios before you schedule a tour. Landlords are not in the business of rightsizing your footprint. Their incentive runs the other way. Excess square footage compounds every month for the life of the lease.

If you cannot explain why you need the square footage you are asking for, you are not ready to negotiate rent.

3. Negotiate total occupancy cost, not the face rate.

Base rent gets the attention. Operating expenses, load factor, tenant improvement shortfalls, parking, and restoration obligations are where the real cost hides.

Before you accept any proposal, model:

Effective rent after free rent and escalations
Your share of operating expenses, taxes, and insurance, and whether annual increases are capped
Who controls the build-out and whether the TI allowance covers a space that actually works for your team
Restoration obligations at lease end (broom-clean versus return-to-original can be a six-figure difference)

Ask for two years of operating expense history and a clear explanation of what is capped versus what floats. A lower face rate with uncapped pass-throughs is often the more expensive deal.

4. Create competition. That is where leverage comes from.

Leverage in a lease negotiation does not come from making demands. It comes from competition.

Structure the process so multiple landlords are competing for your tenancy at the same time. That competition is what moves pricing on base rent, TI, free rent, and the flexibility provisions that matter later. Even in tighter submarkets, a credible alternative changes how the preferred landlord behaves.

An experienced tenant representative changes the tone before the first proposal arrives. The landlord knows you have an advocate who understands the market and will evaluate every option.

5. Fight for flexibility as hard as you fight for rent.

In my experience, optionality often delivers more long-term value than a slightly lower rental rate.

Prioritize:

Renewal options with clear notice windows
Expansion rights with economics you can plan around, not only a vague right of first refusal
Contraction or early termination rights when the business case supports them
Sublease and assignment rights with landlord consent not to be unreasonably withheld

These provisions are not free. Landlords price them in. Model the downside with and without them. The math usually favors buying the flexibility.

6. Use a letter of intent before the 80-page lease

Align on the business terms in a short LOI first: rent, term, renewals, TI, free rent, expense structure, and the flexibility items that matter to you. Getting those points clear in two or three pages saves weeks of attorney time and prevents “standard form” surprises later.

Then have legal counsel review the full lease for default remedies, casualty language, guarantees, holdover, and dispute resolution. The cost of that review is small next to discovering an unfavorable clause two years in.

7. Put a tenant advocate on your side of the table.

The landlord already has professional representation. You should too.

A qualified tenant representative’s job is not only to find space. It is to level the information gap, create competition, protect you in the document, and quarterback the moving parts from market survey through occupancy. In most commercial office transactions, the tenant representative’s fee is paid by the landlord as a cost of doing business. Choosing to go without representation does not reduce your rent. It simply leaves negotiating advantage on the other side of the table.

I have written separately about why lease outcomes depend on who represents you. The short version: sophisticated occupiers treat tenant representation as standard operating procedure, not an optional add-on.

Why local market knowledge matters

Houston office and medical office negotiations turn on submarket vacancy, landlord capital position, and how motivated a particular ownership group is to fill space. National talking points help. Comparable deals in your submarket close the gap. If you are evaluating a healthcare space in Greater Houston, the same process applies, with the added complexity of clinical adjacency, parking ratios, and provider schedules when the tenant is a health system or physician group.

FAQ

When should I start negotiating my office lease renewal?

Start 12 to 18 months before your current lease expires and for larger, more complex projects 24-36 months. That runway gives you time to check whether your footprint still fits, tour real alternatives, and build a stay-versus-go analysis with competing proposals. Landlords track your expiration date. Wait until the final few months, and they know your options have narrowed. Early timing is the single biggest source of leverage in any lease negotiation, and it costs nothing to start early.

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