Houston’s Healthcare Space Crunch: What Practices Need To Know

by Nov 21, 2025Buyer Tips, CRE Strategies, Healthcare, Tenant Tips

Houston’s Healthcare Space Crunch: What Practices Need To Know

By Nelson Udstuen, President, Healthcare Division

Quality medical office space sits at the center of every growth plan, relocation, and renewal. Houston presents plenty of square footage on paper, yet only a narrow share fits the locations and formats healthcare practices rely on for patient access and long-term stability.

Houston’s growth continues to push demand higher. Practices see strong patient volumes and steady expansion; however, the real estate side has not kept pace. Securing the right space now requires earlier planning, broader search criteria, and a clearer understanding of the financial pressures shaping the market.

Let’s explore the forces driving today’s healthcare real estate environment.

 

1. Market Conditions

The shortage is quality space, not total space

Houston has roughly 30 million square feet of medical office space. On paper, occupancy stays in the 80% range. That number does not reflect the true shortage. The pressure sits on quality assets where providers want to practice.

Quality means:

  • An appealing building that supports patient experience.
  • Easy access for a growing patient base.
  • A location that aligns with referral patterns.
  • A tenant mix that supports clinical synergy.

Those locations are limited and have an average occupancy rate of over 90%.

Supply tightened after the last construction cycle

From 2021 through 2023, the market saw about 1 million square feet of new Class A medical office construction starts. By late 2023, the pipeline slowed. By early 2024, virtually no new multi-tenant Class A projects were breaking ground.

For almost two years, the Houston market has added little new supply in the category that matters most to private practices. The result is a tighter field of options, especially for groups that want to stay off hospital campuses.

 

2. Cost Pressures

Rent and build-out costs rise faster than practice revenue

Many quality medical office buildings are owned by publicly traded healthcare REITs, private equity firms, or investment groups that focus on medical assets. These groups hold a large share of the highest-quality buildings and must meet strict return targets. Year-over-year rent growth plays a key role in those returns. Traditional office markets sometimes reset with lower rents. Healthcare rents rarely move downward.

Construction costs tell a similar story. Build-out pricing surged after COVID and never retreated. Medical space remains expensive to convert even with generous construction improvement allowances from landlords.

Reimbursement pressure widens the gap

Large payers hold strong control over reimbursement in Texas. In 2022, three private insurers controlled about 80% of the Texas payer market. That concentration influences reimbursement rates across the board.

A procedure that reimbursed $1000 a few years ago might reimburse closer to $850 today. Hospitals feel it. Private practices feel it. Couple that with higher staffing, equipment, and supply costs, and the margin between declining practice revenue and increasing occupancy costs grows wider each year.

 

3. Quality and Suitability

Challenges beyond price

Price is only part of the equation. Several structural factors affect the search for suitable medical space.

On-campus buildings
Hospitals decide which practices they allow on their campuses. They may decline a specialty if they believe they already have enough of that service. Also, many hospitals require tenants to hold hospital privileges that some providers do not wish to carry. That leaves some providers with no path to a preferred campus location.

Off-campus unrestricted buildings
These assets often sit near full occupancy. Available suites tend to be small or irregularly configured. If the square footage does not match requirements, the option disappears.

Second-generation medical space
This is the most desirable category. It is also the scarcest. Second-generation spaces are easier to occupy and more cost-effective. When one becomes available, it moves fast. Shell space is more common but more expensive to build.

Locations and property types that are hardest to secure

Two categories consistently rank as the most competitive:

1. Class A unrestricted buildings with second-generation space
These are top choices for most practices. They offer modern systems, flexibility on clinical use, and strong patient access. Demand exceeds supply.

2. Retail centers
Healthcare has been moving into retail for years. Providers value visibility, surface parking, and community access. Retail owners understand this and manage exclusives accordingly.

A 100,000-square-foot center might allow one primary care group and then lock out all other primary care uses for the life of the lease. A hospital system or national group can take that slot quickly. When that happens, other groups lose any chance of entering that center for years.

 

4. Strategy and Solutions

Start 24 months ahead

The familiar 12-month timeline no longer works. A realistic window is 24 months. That timeline provides enough room to:

  • Run a full survey of all quality assets, including off-market.
  • Track upcoming second-generation opportunities.
  • Model rent and construction costs.
  • Negotiate without urgency driving the decision.
  • Maintain negotiating leverage with existing landlord.

Without that time, options shrink. A practice might end up with one or two workable choices, neither matching preferred location or layout.

Stay flexible

Some practices assume medical office is the only acceptable setting. Others assume retail is the only setting that fits their patient base. The market often rewards those who are willing to evaluate both.

Examples include:

  • Long-standing medical office users exploring retail to improve patient access.
  • Retail users moving into medical office once the patient base is strong enough that signage matters less.

Flexibility widens the playing field and opens paths that were not obvious at the beginning of the search.

Prepare for higher rent and higher capital needs

Two points guide most new leases and renewals today.

Increase the rent budget
Per square foot rents will be higher than most current lease rates. Some practices reduce square footage to keep total occupancy costs stable. Efficiency becomes important.

Prepare capital for build-out
Few landlords offer full turnkey build-outs. Practices often cover a significant portion of the construction cost. In some cases, that contribution can exceed $75-$100 per square foot.

Groups without a capital plan risk losing the right space at the right time. Cash reserves or financing should be ready early in the process.

 

5. Looking Ahead

Tight conditions will continue

New Class A medical office projects face high pre-leasing thresholds. Many require around 50% pre-leasing before construction begins. Starting rents for proposed projects sit in the mid 30s to low 40s on a net basis, which represents the highest range seen in Houston.

Those rents are difficult for many practices to absorb. As a result, projects stall. The market now sits roughly 1 million square feet behind where it should be in multi-tenant medical development that serves private practices.

These conditions are likely to persist through at least the end of 2026.

Houston remains one of the strongest healthcare markets

Houston remains one of the strongest environments in the country for healthcare growth. Population trends support long term demand, and private practices continue to build large and stable patient bases. The real constraint is the real estate supply chain.

Providers who plan ahead, stay flexible on location and building type, and prepare for the financial realities of construction and rent trends are in the best position to secure space that supports their operational goals.

For groups evaluating expansion, relocation, renewal, consolidation, or purchase, early planning creates the strongest advantage.

Connect with the Leading Healthcare Real Estate Specialist in Texas

Nelson Udstuen

Our Services

Renew
Renew
Relocate / Relocate Early
Relocate / Relocate Early
Expand
Expand
Downsize
Downsize
Sublease / Terminate
Sublease / Terminate
Purchase
Purchase
Sell
Sell
Healthcare Tenant & Buyer Agents
Healthcare Tenant & Buyer Agents
Portfolio Management
Portfolio Management
Data Analytics
Data Analytics
Economic Incentives
Economic Incentives

What our Clients Say

  • This was my first time retaining a broker. Mr. Hale is professional and effectively communicative. The absolute best! I highly recommend him.

    VY NGUYEN Avatar VY NGUYEN
    August 16, 2023

    I had a great experience with Oxford Partners. Matt Rogers helped me and my Law firm secure a great new lease on a fantastic building/office. There is no... read more

    Sean Darvishi Avatar Sean Darvishi
    August 16, 2023

    Ryan Hartsell with Oxford Partners was very helpful in finding my company a new office space recently. Ryan made the process very easy and smooth and was able to work... read more

    Houston LISC Avatar Houston LISC
    August 23, 2022
  • Absolutely relentless. Garth Plyler is our hero. We started looking for new corporate offices and he didn’t quit until we were in the new place. He worked until he found... read more

    Don Doyle Avatar Don Doyle
    August 2, 2023

    Matt did a fantastic job getting us into a great building. I was indecisive and wasn't sure what I needed or where I wanted to be. Matt was very patient... read more

    Brian Ayson Avatar Brian Ayson
    August 18, 2023

    Highly recommended! We were in an urgent need of assistance in relocating our facility, and Chase was just beyond helpful throughout the whole process. Very professional, knowledgeable, and always beyond... read more

    Sean Choi Avatar Sean Choi
    August 23, 2022
  • Oxford Partners handled the 2022 negotiation of Strategic Construction's corporate lease renewal flawlessly. Ryan Hartsell knew the market and had a great working relationship with the landlord reps, that he... read more

    Matt Beshara Avatar Matt Beshara
    August 23, 2022

    My husband and I are very pleased with Ryley! He did an excellent job in finding us a property in the time that we needed it. He provided us with... read more

    TEXAS QUALITY PLUMBING Avatar TEXAS QUALITY PLUMBING
    August 23, 2022

    Chase McAteer worked diligently with our team on finding a suitable location for our business. Our needs are a bit unique, but Chase took the time to understand. ... read more

    David Singleton Avatar David Singleton
    August 23, 2022
  • Matt Rodgers helped us find a great office in a great building and was nice to work with throughout the whole process.

    Morgan Hartmann Avatar Morgan Hartmann
    August 16, 2023

    Chase was outstanding when I needed help finding commercial real estate for my medical practice. I had specific requirements and he worked relentlessly to find me options in a seller's... read more

    Dr Iyad Daher Avatar Dr Iyad Daher
    September 23, 2022

    Ryan and Melissa with Oxford Partners were amazing to work with and helped our company locate a new clinic space in a very short timeframe. The communication was excellent throughout... read more

    Principle Health Systems Avatar Principle Health Systems
    December 23, 2022
  • You don't want Chase McAteer, you NEED Chase McAteer! I had the pleasure of working with Chase a little over 5 years ago when I started a new company and... read more

    Diana Dang Avatar Diana Dang
    August 16, 2023

    Ryan and Perry did an excellent job guiding our company in our search for a new office space to lease. They are very knowledgeable and were extremely patient throughout... read more

    Sarah Page Avatar Sarah Page
    August 23, 2022

    I recently had the pleasure of working with Perry Mazzone as my real estate agent, and I couldn't be happier with the experience. Perry was absolutely fantastic! He worked tirelessly... read more

    Tedjo Liman Avatar Tedjo Liman
    April 23, 2023
  • Ryan Hartsell and his team did a great job of helping us look at new space options and then renegotiate with our current space in a beneficial way. We... read more

    Mark B Avatar Mark B
    February 23, 2023

    Had a wonderful experience with both Jacob and Vincent. They met my needs, battled for the best rates and outcomes during the lease negotiations, and were very quick to... read more

    Ryan Reisner Avatar Ryan Reisner
    July 23, 2023

    Chase and Melissa were awesome! They kept us informed every step of the way and worked so diligently in helping us to secure a property. We look forward to working... read more

    Cayla Clark Avatar Cayla Clark
    January 23, 2023
  • Vincent Vega has been so helpful throughout the process of obtaining a new office space. He was always available to answer all questions when needed. I definitely will recommend him.

    Faustine Avatar Faustine
    August 23, 2022

    Working with Chase is the absolute best! He's knowledgable and has your best interest at heart when finding a commercial space for your business.

    Emma Wilking Ghelber Avatar Emma Wilking Ghelber
    August 16, 2023

    I can't say enough good things about Chase and his firm. From day 1, Chase has been attentive, professional, and an advocate for us (as a tenant looking for... read more

    Ted Holmgren Avatar Ted Holmgren
    November 23, 2022
  • COMPLETELY SATISIFIED!!! 😊 I didn't know where or how to start with the sell of my building until I met DJ Hale with the Oxford Partners. He took... read more

    CYnthia Ferrell Avatar CYnthia Ferrell
    October 23, 2022

    Oxford Partners were great with their follow ups and helped us negotiate a better contract. Thank you Ryan and Perry for all your help.

    AliAsgher Sunelwala Avatar AliAsgher Sunelwala
    August 22, 2023

    Professional, supportive and quick. I got a great help from DJ and really appreciate it.

    Jimin Lee Avatar Jimin Lee
    April 23, 2023
  • I recently had the privilege of working with D.J. Hale on a couple of projects. I have to congratulate you folks on having such a wonderful person in your employ.... read more

    Kenneth Kleinmann Avatar Kenneth Kleinmann
    February 23, 2023

    Extremely professional, knows what he is doing and also understands the needs and budget of his clients. I am extremely happy with his service as I got a very good... read more

    Spectrum SBLLC Avatar Spectrum SBLLC
    December 23, 2022

    Great experience working with Ryan! Would recommend.

    Amit Mittal Avatar Amit Mittal
    August 23, 2022
  • I would recommend Oxford Partners, and specifically D.J. Hale, to anyone looking for a commercial broker. Several months ago, our church—a relatively new mission church in Houston, located in the... read more

    President Hope Lutheran Avatar President Hope Lutheran
    August 17, 2023

    Vincent assisted my law firm in securing new office space and was always responsive, insightful and a great advocate for my business throughout the entire process. I cannot... read more

    Brian Nguyen Avatar Brian Nguyen
    August 23, 2022

    Working with Oxford Partners to find our companies new office space went really well. We had the pleasure of working with DJ who was professional, helpful, and responsive throughout the... read more

    Drew Roberts Avatar Drew Roberts
    July 23, 2023