Medical real estate developers are trying to keep up with Houston’s rapid population growth. But surging operating expenses and the rapidly evolving healthcare industry make that a significant challenge.
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Anchor Health Properties’ Todd Graham, Transwestern’s Justin Brasell, Edloe Realty’s Shehzad Roopani and Hunton Group’s Paul McCleary.
“New buildings are very hard to pencil,” Transwestern Executive Managing Director Justin Brasell said at Bisnow’s Future of Houston Healthcare event at The Post Oak Hotel on Tuesday.
Operating costs are averaging about $17 per SF, limiting the development of medical office buildings apart from some in Houston’s urban core, where they can justify higher rental rates, Brasell said. At the same time, healthcare operators are constantly being asked to handle budget cuts and raise the standard of patient care, panelists at the event said.
“The landscape is clearly changing,” Edloe Realty Managing Partner Shehzad Roopani said. “What we hear when we visit with C-suites all over the country is, ‘How do we do more with less?’ And that is going to continue to be the case.”
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The University of Texas MD Anderson Cancer Center’s Bhargav Goswami, Browne McGregor Architects’ Cory Porter, O’Donnell/Snider Construction’s Evan Alford, Lincoln Property Co.’s Tim Robinson, Palo Duro Commercial Partners’ Ashley Strickland and Shaw Industries’ John Bernatz.
A Kodiak Solutions study this week warned that the One Big Beautiful Bill Act’s cuts to Medicaid could cost hospitals $25B per year. As hundreds of people move to the Houston area each day, healthcare providers are scrambling to deliver care under financial constraints, meaning developers and brokers have to help find creative solutions, Roopani said.
Health systems are strategically deploying capital, said Todd Graham, senior vice president of debt capital markets and structured finance for Anchor Health Properties.
The share of nontraditional medical office buildings in Anchor Health’s financed development pipeline has increased significantly, he said. These assets, like freestanding emergency departments or inpatient rehabilitation centers, make up about 20% of overall medical office buildings but more than 50% of Anchor’s pipeline.
Those facilities help health systems capture patients long after a procedure or hospitalization, making the relationship more permanent, he said.
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Savills’ Madeline Cleary, Memorial Hermann Health System’s Mital Brahmbhatt, PhiloWilke Partnership’s Melissa Edwards, Shah Smith & Associates’ Jon Harper, MD Anderson Cancer Center’s Pouyan Layegh and MD Anderson Cancer Center’s Karen Mooney.
Shifting procedures from inpatient to outpatient has been a long-term trend, but it is happening rapidly today, Roopani said. And it makes practical sense.
“The cost per square foot is much higher for an acute care hospital than for outpatient facilities,” HOK Senior Healthcare Planner Davene Morgan said.
It also makes care more accessible to residents of communities on the outskirts of Houston’s metropolitan area.
“The benefit of that is we’re taking care to the community,” Morgan said. “[There is] a lot of strategic locating of facilities in the neighborhoods that need them.”
Memorial Hermann Cypress Hospital is an example of that, Memorial Hermann Chief Facilities Officer Jeff Mosely said. The system started out with convenient care centers before building hospitals in Cypress and Pearland, he said.
“We had the property, but we started off with … specialty clinics and let them grow organically,” Mosely said. “Both those campuses are doing very well. In fact, in Cypress we are growing exponentially. It was a really good strategy for us.”
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Perkins & Will’s Ashley Dias, Austin Commercial’s Ben Janes, MD Anderson Cancer Center’s Pam Brink, JLL’s Daina Pitzenberger, Harris Health’s Esmaeil Porsa and Walter P Moore’s Rachel Calafell.
The Cypress hospital is set for a $278M expansion this fall, its third since opening eight years ago, the Houston Chronicle reported.
Memorial Hermann also acquired 40 acres in Waller this summer for potential future development, and Howard Hughes is developing the first medical office in Bridgeland for the health system.
Getting developments off the ground requires financing, which is achievable with a certain level of creativity, Graham said. Anchor Health specializes in alternative finance methods like accessing the fixed income investment market, which can reduce the cost of capital compared to traditional development, he said.
“Money drives everything,” Morgan said. “… It’s forcing us to redefine and really think outside the box.”
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Texas Children’s Hospital’s Cindy Lowery, Houston Methodist’s Marissa Vasquez, Harris Health System’s Patrick Casey, Page’s Renee Fiala, HOK’s Davene Morgan, Marek’s Phil Nevlud and Paradigm Structural Engineers’ Kurt Lindorfer.
Houston’s medical office building sector saw 342K SF of positive absorption during the past year and only 91K SF of new deliveries, boosting occupancy to nearly 90%, according to Colliers’ medical building report from the first half of 2025.
The construction pipeline is growing, though, with major hospital systems leading the way, according to the report. There is about 1.2M SF under construction, putting Houston in third place nationally for medical office square footage under construction, according to a RevistaMed ranking.
That may pick up even more as institutional capital providers are moving off the sidelines, where they had been for about a year, Graham said.
“You couldn’t get a deal done,” he said. “We’re now seeing that capital coming back into the game.”
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JE Dunn Construction’s Sam O’Connor, The University of Texas Medical Branch’s Caryn Guajardo, Wolff Cos.’ Carolyn Wolff Dorros, Memorial Hermann Health System’s Jeff Mosely and Harvey Cleary’s Justin Boehm.
Underwriting on the debt side is also getting leaner, and pricing is getting more aggressive, Graham said.
“As we see interest rates continue to come down, the projects will get easier,” he said. “It’s all about the economics. It has to pencil out.”