1. COLLIERS INTERNATIONAL | HOUSTON MEDICAL OFFICE | 2ND QUARTER 2010
YEAR-END 2012 | MEDICAL OFFICE
Accelerating success.
HOUSTON MEDICAL OFFICE
MARKET INDICATORS
1ST HALF
2012
2ND HALF
2012
CITYWIDE NET
ABSORPTION (SF) 735K 250K
CITYWIDE SF DELIVERED 1.0M 207K
CITYWIDE AVERAGE
VACANCY 12.6% 12.5%
CLASS A
AVERAGE VACANCY 14.4% 14.6%
CITYWIDE AVERAGE
RENTAL RATE $23.11 $23.17
CLASS A AVERAGE
RENTAL RATE $28.92 $29.13
COLLIERS HEALTHCARE SERVICES GROUP - Houston Texas
HEALTHCARE MARKET COMMENTARY
Houston’s Medical Office Market Posts 984,525
SF of Positive Net Absorption in 2012
Houston medical office buildings recorded 249,533 SF of positive net absorption
in the second half of 2012, pushing year-end 2012 net absorption to 984,525 SF.
By property class, Class A posted the largest amount of year-end positive net
absorption with 771,903 SF, followed by Class B properties posting 244,875 SF
of positive net absorption. Since mid-year, the citywide average vacancy rate
decreased 10 basis points and the average quoted rental rate increased slightly
from $23.11 to $23.17 per SF.
Houston’s medical office market is expected to benefit from both short- and
long-term regional trends. Disciplined development, with only 9 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. Houston
area home sales increased by 17.4% compared to sales one year ago. The
Houston metropolitan area added 85,000 jobs between November 2011 and
November 2012, an increase of 3.2%, and is on track to add the same amount
in 2013. Unemployment fell to 5.8% from 7.3% one year ago.
5%
7%
9%
11%
13%
15%
17%
(200,000)
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
Absorption New Supply Vacancy
ABSORPTION, NEW SUPPLY & VACANCY RATES
Houston
UNEMPLOYMENT
NOV
2011
NOV
2012
HOUSTON 7.3% 5.8%
TEXAS 7.2% 5.8%
U.S. 8.2% 7.4%
JOB GROWTH
ANNUAL
CHANGE
# OF JOBS
ADDED
HOUSTON 3.2% 85K
TEXAS 2.6% 274K
U.S. 1.4% 1.9M
JOB GROWTH & UNEMPLOYMENT
(Not Seasonally Adjusted)
1

2. MEDICAL OFFICE & HEALTHCARE MARKET COMMENTARY | YEAR-END 2012 | COLLIERS INTERNATIONAL HOUSTON TEXAS
COLLIERS INTERNATIONAL | P.
Vacancy & Availability
Houston’s medical office occupancy
increased slightly during the second
half of 2012 with the citywide average
vacancy rate decreasing by 10 basis
points (bps) to 12.5% from 12.6%.
By property class, Class B vacancy
rates posted the largest decrease
during the second half of 2012, 50
bps to 11.5% from 12.0% in 2Q 2012.
Class A vacancy rates increased 20
bps to 14.6 % from 14.4%, while
Class C vacancy rates increased 30
bps to 12.1% from 12.1%mid-year.
Sublease space has not had a
significant impact on current vacancy
rates, remaining below 1.0% of total
vacant space over five years. Of the
3.4M SF of vacant space on the
market at year-end 2012, only 61,180
SF was sublease space.
Disciplined medical office
development activity has helped
prevent major upheavals in current
occupancy levels. There were only
seven (7) new buildings (152,108 SF)
added to the market during 2011 and
just nine (9) buildings (1.26M SF)
delivered in 2012. The largest project
completed within the past two years
was the University of Texas MD
Anderson Cancer Center
Administration Building located at
7007 Bertner Avenue in the Texas
Medical Center (895,600 SF owner
occupied).
Presently, only one medical office
building is under construction, The
30,000 SF College Park Medical
Plaza located at 3117 College Park
Dr. in The Woodlands. The project is
23% pre-leased and is scheduled to
deliver June 2013.
Absorption & Demand
Houston medical office buildings
recorded 249,533 SF of positive net
absorption in the second half of 2012,
pushing year-end 2012 net absorption
to 984,525 SF.
By property class, Class A posted the
largest amount of year-end positive
net absorption with 771,903 SF,
followed by Class B properties
posting 244,875 SF of positive net
absorption. In contrast, Class C
posted 32,253 SF of negative net
absorption.
Rental Rates
Quoted full-service rental rates for all
medical office property classes
averaged $23.17/SF in 4Q 2012, an
increase from the $23.00/SF in mid-
year. Medical office building landlords
continued to offer lease concessions
including free rent and generous
tenant improvement packages to
attract and retain credit worthy
tenants.
By property class, on a bi-annual
basis, the average Class A rental rate
of $29.13 per SF increased from
$28.92 per SF, Class B increased to
$22.57 from $22.43 per SF, and the
average Class C rate increased from
$22.43 to $22.57 per square foot.
MEDICAL OFFICE
CLASS A & B VACANCY VS. RENTS
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
8%
10%
12%
14%
16%
18%
20%
Q1-
10
Q2-
10
Q3-
10
Q4-
10
Q1-
11
Q2-
11
Q3-
11
Q4-
11
Q1-
12
Q2-
12
Q3-
12
Q4-
12
Class A Vacancy Class B Vacancy
Class A Rents Class B Rents
Class A
7,611,919
28.2%
Class B
14,239,726
54.9%
Class C
5,006,935
18.6%
Class A Class B Class C
(100,000)
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
Q1-10
Q2-10
Q3-10
Q4-10
Q1-11
Q2-11
Q3-11
Q4-11
Q1-12
Q2-12
Q3-12
Q4-12
Class A Class B Class C
MEDICAL OFFICE
NET ABSORPTION BY CLASS
MEDICAL OFFICE
EXISTING INVENTORY BY CLASS
2

3. MEDICAL OFFICE & HEALTHCARE MARKET COMMENTARY | YEAR-END 2012 | COLLIERS INTERNATIONAL HOUSTON TEXAS
COLLIERS INTERNATIONAL | P.
Sales Activity
Transaction activity remained solid
during 2012, with 57 properties
changing hands. According to CoStar
Comps, Houston medical sales
transactions had a total dollar volume of
$170M, averaging $223 per SF with a
7.4% capitalization rate.
Many of the transactions were multi-
property sales, however, there were
several significant single property
transactions that occurred.
The 27,760 SF 8515 Fannin MOB in the
South Main/Medical Center submarket
was purchased by The Link Group, Inc.
in September 2012.
The 80,740 SF 1111 Augusta MOB in
the San Felipe/Voss submarket was
purchased by Sentinel Real Estate
Corporation for $21.4M or $265 per SF.
The property was built in 1977 and was
renovated in 2004..
The 29,313 SF, Kingsland Medical
Plaza located at 777 S Fry Rd. in the
Katy Freeway West submarket was
purchased by Finesa Real Estate Group
for $4.3M or $147 per SF.
Investcorp JV Griffin Partners
purchased the Offices at Pin Oak Park,
a 504,700 SF, five-building portfolio
from McCord Development for $78.7M
or $156 per SF. The property is located
in the Bellaire submarket and was 90%
occupied at the time of sale.
Leasing Activity
Houston’s 2012 medical office leasing
activity reached 823,000 SF. By
property class, Class B product led the
market with 464,000 SF leased,
followed by Class A at 271,000 SF, then
Class C at 88,000 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.
One of the larger transactions was
Physician Endoscopy Center’s lease
renewal of 14,080 SF at 3030 S
Gessner Rd. in the Westchase
submarket.
Additional lease transactions include:
DermSurgery Associates, PA renewed
its lease of 14,000 SF in Greenpark I in
the South Main/Medical Center
submarket; Legacy Community Health
Center leased 3,700 SF at 8300
Homestead Rd. in the Northeast Near
submarket; Woodlands Gynocology &
Aesthetics leased 3,000 SF Medical
Arts Center II in The Woodlands
submarket.
Source: Costar Group; Real Capital Analytics
RBA: 27,760 SF
Built: 1994
Buyer: The Link Group, Inc.
Seller: Treeline Partners Ltd
Sale Date: Sep 2012
RBA: 80,740 SF
Built: 1977/2004
Buyer: Sentinel Real Estate Corp
Seller: Healthcare Realty Trust Inc.
Sale Date: Aug 2012
Sale Price: $21.4M
Cap Rate: 6.81%
RBA: 29,313 SF
Built: 1994
Buyer: Finesa Real Estate Group
Seller: Norvin Partners
Sale Date: Dec 2012
Sale Price: $4.3M
Kingsland Medical Plaza
777 S Fry Rd
Katy Freeway West Submarket
8515 Fannin Street1
South Main/Medical Center Submarket
SALES TRANSACTIONS
1111 Augusta Drive
San Felipe/Voss Submarket
1Colliers International Houston Transaction
Cordes Medical Building
2655 Cordes Drive
E Fort Bend Co/Sugar Land Submarket
RBA: 8,531 SF
Built: 2005
Buyer: Scuben Cordes, LLC
Seller: Jag At Cordes LLC
Sale Date: Nov 2012
Sale Price: $2.3M
Cap Rate: 8.25%
3

4. MEDICAL OFFICE & HEALTHCARE MARKET COMMENTARY | YEAR-END 2012 | COLLIERS INTERNATIONAL HOUSTON TEXAS
COLLIERS INTERNATIONAL | P.
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 $14 billion. TMC is
also one of Houston’s largest employers with 92,500 employees, including physicians, scientists, researchers and
other advanced degree professionals in the life sciences.
The internationally-renowned, 1,300-acre TMC is the world’s largest medical complex with 52 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. Member institutions include 13 hospitals
and two specialized patient facilities, as well as 19 renowned academic and research institutions virtually covering
all health-related careers – including two medical schools, four nursing schools, as well as schools of dentistry,
public health, and pharmacy – and 15 support services organizations. Over 69,000 students – including more than
7,000 international students – are affiliated with TMC, including high school, college and health profession graduate
programs. More than 7.1 million patients visited in 2011, including approximately 16,000 international patient visits.
TMC Patient Care Institutions
The University of Texas M.D. Anderson Cancer Center
Texas Children’s Hospital
Memorial Hermann Hospital System
The Methodist Hospital
St. Luke’s Episcopal Hospital
Lyndon B. Johnson General Hospital
Quentin Mease Community Hospital
Ben Taub General Hospital
The Institute for Rehabilitation and Research
The Hospice at the Texas Medical Center
Texas Heart Institute
Shriners Hospitals for Children – Houston
Veterans Affairs Medical Center in Houston
In addition to the medical facilities and institutions of higher
learning, TMC is also home to more than 280 professional
buildings. Overall, the complex covers over 18 miles of
public and private streets and roadways, with 45.5M 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. In terms of future growth,
TMC approved $7.1 billion in building and infrastructure
investments between 2008 and 2012, with annual research
expenditures estimated at $1 billion.
TMC Academic and Research Institutions
Texas Children’s Hospital Neurological Research Institute
Baylor College of Medicine
The University of Texas Health Science Center at Houston
The University of Texas M.D. Anderson Cancer Center
University of Houston College of Pharmacy
Rice University
Texas A&M University Health Science Center
Prairie View A&M University College of Nursing
Texas Woman’s University Institute of Health Sciences
Texas Southern University College of Pharmacy and Health
Sciences
Harris County Psychiatric Center
Houston Academy of Medicine
TEXAS MEDICAL CENTER
The University of Texas M.D. Anderson Cancer
Center ranked #1 in U.S. News & World Reports
“Americas Best Hospitals” for cancer care.
4

5. MEDICAL OFFICE & HEALTHCARE MARKET COMMENTARY | YEAR-END 2012 | COLLIERS INTERNATIONAL HOUSTON TEXAS
COLLIERS INTERNATIONAL | P.
HOUSTON AREA HOSPITAL LOCATIONS
5

6. MEDICAL OFFICE & HEALTHCARE MARKET COMMENTARY | YEAR-END 2012 | COLLIERS INTERNATIONAL HOUSTON TEXAS
COLLIERS INTERNATIONAL | P.
Accelerating success.
COLLIERS INTERNATIONAL | HOUSTON
1300 Post Oak Boulevard
Suite 200
Houston, Texas 77056
Main +1 713 222 2111
LISA R. BRIDGES
Director of Market Research Houston
Direct +1 713 830 2125
Fax +1 713 830 2118
lisa.bridges@colliers.com
6
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