A recent real estate report found that, following healthy gains, Houston's medical office market might see less action in the near future. Photo via Getty Images

Houston’s medical office market is on a roll.

A report from commercial real estate services company JLL shows net absorption and transaction volume saw healthy gains in 2022:

  • The annual absorption total of 289,215 square feet was 50.5 percent higher than the five-year average.
  • Transaction volume notched a 31.7 percent year-over-year increase.

Meanwhile, net rents held steady at $26.92 per square foot, up 1.3 percent from the previous year. The fourth-quarter 2022 vacancy rate stood at 15.9 percent.

Despite those numbers, the report suggests a slowdown in medical office rentals may be underway.

“Tenants who may have previously considered building out or expanding their lease agreements are now in a holding pattern due to increased construction costs and higher interest rates,” the report says. “These factors are having a direct impact on financial decisions when it comes to lease renewals, making it more likely that tenants will remain in their existing location for the foreseeable future.”

Still, the report notes “a number of bright spots for the future of healthcare in Houston.” Aside from last year’s record-high jump in sales volume, the report indicates an aging population coupled with a growing preference for community-based treatment “will lift demand even higher in coming years.”

The report shows that in last year’s fourth quarter, 527,083 square of medical office space was under construction in the Houston area, including:

  • 152,871 square feet in the Clear Lake area.
  • 104,665 square feet in the South submarket.
  • 103,647 square feet in Sugar Land.
Last fall, JLL recognized Houston as a top city for life sciences. According to that report, the Bayou City lands at No. 13 in JLL’s 2022 ranking of the country’s top 15 metro areas for life sciences. JLL says Houston “is poised for further growth” in life sciences.
A new report shows Houston has attracted federal support as the life science industry expands locally. Photo via Getty Images

Report: Federal funding, increased life science space drive industry growth in Houston

by the numbers

Federal funding, not venture capital, continues to be the main driver of growth in Houston’s life sciences sector, a new report suggests.

The new Houston Life Science Insight report from commercial real estate services company JLL shows Houston accounted for more than half (52.7 percent) of total funding from the National Institutes of Health (NIH) across major Texas markets through the third quarter of this year. NIH funding in the Houston area totaled $769.6 million for the first nine months of 2022, exceeding the five-year average by 19.3 percent.

VC funding for Houston’s life sciences sector pales in comparison.

For the first nine months of this year, companies in life sciences raised $147.3 million in VC, according to the report. Based on that figure, Houston is on pace in 2022 to meet or surpass recent life sciences VC totals for most other years except 2021. JLL describes 2021 as an “outlier” when it comes to annual VC hauls for the region’s life sciences companies.

JLL notes that “limited venture capital interest in private industry has remained a challenge for the city’s life sciences sector. Furthermore, it may persist as venture capital strategies are reevaluated and investment strategies shift toward near-term profits.”

While life sciences VC funding has a lot of ground to cover to catch up with NIH funding, there are other bright spots for the sector.

One of those bright spots is the region’s rising amount of life sciences space.

The Houston area boasts more than 2.4 million square feet of space for life sciences operations, with another 1.1 million under construction and an additional 1.5 million square feet on the drawing board, the report says. This includes a soon-to-open lab spanning 25,000 square feet in the first phase of Levit Green.

A second bright spot is the migration of life sciences companies to the region. Two Southern California-based life sciences companies, Cellipoint Bioservices and Obagi Cosmeceuticals, plan to move their headquarters and relocate more than half of their employees to The Woodlands by the first half of 2023, according to the report.

“Houston’s low tax rate and cost of living were primary drivers for the decisions, supported by a strong labor pool that creates advantages for companies’ expansion and relocation considerations,” JLL says.

A new report says Houston “is poised for further growth” in life sciences. Photo via Getty Images

Houston named a market to watch within the life science sector

h-town on the rise

Houston is receiving more kudos for its robust life sciences sector.

Bayou City lands at No. 13 in JLL’s 2022 ranking of the country’s top 15 metro areas for life sciences. JLL says Houston “is poised for further growth” in life sciences.

Here’s how Houston fares in each of the ranking’s three categories:

  • No. 12 for supply of life sciences-oriented commercial real estate
  • No. 14 for access to life sciences talent
  • No. 15 for life sciences grant funding and venture capital

Earlier this year, Houston scored a 13th-place ranking on a list released by JLL competitor CBRE of the country’s top 25 life sciences markets. Meanwhile, commercial real estate platform CommercialCafe recently placed Houston at No. 10 among the top U.S. metros for life sciences.

JLL applauds Houston for strong growth in the amount of life sciences talent along with “an impressive base of research institutions and medical centers.” But it faults Houston for limited VC interest in life sciences startups and a small inventory of lab space.

“Houston is getting a boost [in life sciences] from the growing Texas Medical Center and an influx of venture capital earmarked for life sciences research,” the Greater Houston Partnership recently noted.

Boston appears at No. 1 in this year’s JLL ranking, followed by the San Francisco Bay Area, San Diego, Washington, D.C./Baltimore, and Philadelphia.

Last year’s JLL list included only 10 life sciences markets; Houston wasn’t among them.

“The long-term potential of the sector remains materially unchanged since 2021,” Travis McCready, head of life sciences for JLL’s Americas markets, says in a news release.

“Innovation is happening at a more rapid pace than ever before, the fruits of research into cell and gene therapy are just now being harvested, and revenue growth has taken off in the past five years as the sector becomes larger, an atypical growth track.”

A new report from a real estate firm has Houston high on its list for emerging life science hubs. Photo by Dwight C. Andrews/Greater Houston Convention and Visitors Bureau

Houston named a top life science emerging market

health tech

Houston is moving up the life sciences ladder.

In October, commercial real estate services company CBRE ranked Houston second on its list of the top emerging clusters for life sciences in the U.S. Pittsburgh took the No. 1 spot, while Austin sat at No. 3.

Now, commercial real estate services company JLL also is giving Houston's life sciences sector some love. JLL recently issued a report identifying Houston as one of the top emerging markets in the U.S. for life sciences.

Among the markets covered in the JLL report, Houston ranked seventh for the number of STEM degrees among people 25 and older (409,354). The gives Houston an edge in terms of life sciences talent.

JLL puts Houston at No. 8 in another life sciences category: wage positioning. This refers either to wages above the industry average that entice life sciences talent or wages below the industry average that attract cost-conscious employers.

"Traditional top life science markets will likely retain their positions; however, it's encouraging that Houston, home to one of the world's largest medical centers, continues to rise on the list of markets for further advancements in the life sciences sector," JLL says.

According to the Greater Houston Partnership, Houston has more than 1,760 life sciences companies, hospitals, health care facilities, and research institutions with a workforce exceeding 320,000. Houston's major corporate employers in life sciences include Abbott, Bayer, Fisher Scientific, Merck, Mylan, Novartis, and Philips.

Of course, the Texas Medical Center — the world's largest medical complex — plays a critical role in the region's life sciences sector. The medical center's TMC3 life sciences hub, set to open in 2022, promises to lift Houston's life sciences profile even more. The 30-acre, 1.5-million-square-foot TMC3 campus is projected to create 30,000 jobs and generate an economic impact of $5.2 billion.

Houston-based real estate developer Hines also is getting in on the life sciences game. It is leading establishment of a 52-acre life sciences hub, Levit Green, adjacent to the Texas Medical Center.

In February, commercial real estate firm NAI Partners pinpointed these as the Houston area's current and potential hotspots for life sciences:

  • 1,345-acre Texas Medical Center complex
  • 4,200-acre Generation Park mixed-use development
  • Katy
  • League City
  • New Caney
  • Pearland
  • Sugar Land
  • The Woodlands

NAI Partners noted that life sciences clusters ranking above Houston in the CBRE report sit on the East Coast or West Coast. That makes Houston "the essential location for top-tier, forward-thinking life sciences companies interested in expanding into new geographies," says Holden Rushing, senior vice president of NAI Partners and a member of its life sciences and health care team.

NAI Partners says Houston has affirmed its reputation as one of the most appealing places in the U.S. for life sciences properties.

"Between its highly educated talent pool, nationally regarded health care industry, and business-friendly environment — including being one of the few states without a personal, state, or corporate income tax — Houston's cost-effective tax structure makes it a choice location for any company looking to establish a presence or expand its current footprint," says Travis Rodgers, chief operating officer and executive vice president of NAI Partners.

Fuse Workspace is the latest coworking concept for the west side of town. Photo courtesy of Fuse

Dallas coworking company to open its first location in Houston

new to hou

Dallas-based Fuse Workspace is gearing up to open the first of what could be several coworking spaces in the Houston area as various coworking providers ramp up their Bayou City presence.

Fuse will unveil its first Houston location March 2 at CityCentre, a 47-acre, mixed-use development on the former site of Town & Country Mall in the Memorial City district. The grand opening is set for April 30.

Included in the 29,000-square-foot Fuse space, at 12848 Queensbury Ln., will be Houston's first showroom for Varidesk, a Coppell-based provider of standing desks and other office equipment.

John Herring, brand manager and director of operations at Fuse, says Houston, Austin, and Dallas are the company's target markets. A Fuse space is scheduled to open in July in the Austin suburb of Bee Cave.

"We love Houston and see a great future for our brand here, with multiple locations," Herring tells InnovationMap. "We don't have definitive plans to announce yet, but we have several strategic locations in the area that on our list."

Fuse is a division of DPG Partners LLC, a developer, owner, and operator of coworking spaces in Texas, as well as Hilton and Marriott hotels in Texas and Arkansas.

Fuse Workspace is the latest coworking concept for the west side of town. Photo courtesy of Fuse

The Fuse location at CityCentre will feature about 23,000 square feet of Class A office space, along with about 6,000 square feet of outdoor space. Highlights include:

  • 90 private offices
  • Three specialty suites, including one already leased by Varidesk
  • Four terraces
  • Seven conference rooms, including a podcast studio
  • Event space accommodating up to 100 people

"Our goal is to create an outstanding experience in the office through décor, amenities, programming, conference space, and our concierge staff," Herring says.

Fuse is joining a number of coworking providers that have set up shop in and around Memorial City. For instance, Life Time Work, affiliated with a nearby Life Time Fitness gym, opened last year at City Centre. Memorial City also is home to The Cannon, a 120,000-square-foot coworking campus.

Commercial real estate services provider JLL predicts 30 percent of the U.S. office market will be "flexible" space, such as coworking setups, by 2030. That compares with less than 5 percent in early 2019.

In the Houston market, 1.9 percent of office space was considered "flexible" in early 2019, according to JLL, versus 2.8 percent in Austin and 1.7 percent in Dallas.

"Our research, and our conversations with corporate executives across the globe, indicate that flexible work is not just a passing trend — it's woven into the fabric of the future of work," Scott Homa, senior vice president and director of U.S. office research at JLL, said in a 2019 release. "Even though some markets are better positioned for rapid growth, this still leaves significant runway for expansion across all U.S. office markets."

An October 2019 report from Yardi Matrix, a provider of real estate data, shows the Houston market with 113 coworking spaces encompassing more than 2.2 million square feet. By comparison, Dallas-Fort Worth had 159 coworking spaces exceeding 3.5 million total square feet, and Austin had 47 spaces surpassing 1.2 million total square feet.

"The penetration of coworking is highest in markets with new-market economies and tight vacancy rates," the Yardi Matrix report states.

According to JLL, the office vacancy rate in the Houston market stood at 22.8 percent in the fourth quarter of 2019. But office occupancy is improving, according to a JLL report, as more than 1.85 million square feet of space was absorbed in the Houston market during the fourth quarter of 2019. For Houston, that marked a 20-year high for positive net absorption in a single quarter, the report states.
Houston's industrial development has grown, and a contributing factor is the rise of e-commerce activity. Getty Images

E-commerce growth is sparking some changes in Houston's industrial real estate market

Making moves

With retail e-commerce sales in the U.S. projected to soar from $501 billion in 2018 to $740 billion in 2023, it's no wonder that Houston's industrial market is expanding faster than Santa's bag of toys.

E-commerce is one of the main drivers of an upturn in industrial construction in the Houston area. Estimates from four commercial real estate services companies show that during the third quarter, anywhere from 13.3 million square feet to 18.5 million square feet of industrial space was under construction in the region. That volume is up considerably from the second quarter of 2019 and from the same period in 2018.

Around the country, the "need for speed and choice" to appease shoppers is driving a lot of the increased demand for industrial space, Hamid Moghadam, chairman and CEO of industrial REIT Prologis, recently told Wall Street analysts. That, he said, is because "the more choices you want and the quicker you want them, the more inventory you need to position near the customers."

Rob Stillwell, executive managing director in the Houston office of commercial real estate services company Newmark Knight Frank, says many of the local industrial facilities geared toward e-commerce are being built in and around pockets of residential growth. This includes a swath from I-10 West in Katy to I-45 North toward The Woodlands. Among the facilities popping up in that corridor are massive projects for Amazon, FedEx, and UPS, according to Stilwell.

"E-commerce is likely a contributing factor to many distribution operations in Houston, but not the sole reason for the strong demand seen in the market," Stilwell says. Many new or expanding industrial tenants in the market do have an e-commerce component, he adds, yet won't be leasing space just for e-commerce purposes.

In Houston, e-commerce-fueled construction of industrial space is especially prevalent near George Bush Intercontinental Airport, according to commercial real estate services company Cushman & Wakefield. However, Houston's northwest submarket is seeing the most industrial construction in the area, with 5.5 million square feet underway in the third quarter.

Commercial real estate services company JLL pegs the southeast submarket as the hottest, with its third-quarter report showing 3.5 million square feet of new industrial projects underway there.

Aside from e-commerce, the Port of Houston and the petrochemical sector are propelling industrial construction in the area, Cushman & Wakefield says.

Around the Houston area, nine of the 89 industrial spaces under construction in the third quarter exceeded 500,000 square feet, Cushman & Wakefield says. Several of those lack a specific e-commerce element. This includes a 1 million-million-square-foot manufacturing facility for Coca-Cola, a more than 770,000-square-foot distribution center for Home Depot, and a nearly 550,000-square-foot distribution center for Costco.

Cushman & Wakefield warns that Houston's industrial market could suffer from an oversupply of space, as well as from a drop in shipping activity prompted by ongoing trade disputes and a decline in oil prices. Although industrial vacancy is expected to rise slightly through 2021, the company says, "demand continues for more modern, state-of-the-art facilities and market fundamentals remain healthy."

During the third quarter, only one-fourth of the space under construction in the Houston area was preleased, according to commercial real estate services company Colliers International. However, another 10 percent to 25 percent of that inventory should be preleased before the facilities are completed, the company says.

The area's industrial vacancy rate rose to 7.7 percent in the third quarter as new projects came online, Cushman & Wakefield says. Once more supply arrives, the vacancy rate is expected to tick up.

"Low interest rates and robust investor demand are expected to continue generating strong interest for Houston industrial assets. On the fundamentals side, the market is closely watching new inventory additions," JLL says.

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Houston robotics co. unveils new robot that can handle extreme temperatures

Hot New Robot

Houston- and Boston-based Square Robot Inc.'s newest tank inspection robot is commercially available and certified to operate at extreme temperatures.

The new robot, known as the SR-3HT, can operate from 14°F to 131°F, representing a broader temperature range than previous models in the company's portfolio. According to the company, its previous temperature range reached 32°F to 104°F.

The new robot has received the NEC/CEC Class I Division 2 (C1D2) certification from FM Approvals, allowing it to operate safely in hazardous locations and to perform on-stream inspections of aboveground storage tanks containing products stored at elevated temperatures.

“Our engineering team developed the SR-3HT in response to significant client demand in both the U.S. and international markets. We frequently encounter higher temperatures due to both elevated process temperatures and high ambient temperatures, especially in the hotter regions of the world, such as the Middle East," David Lamont, CEO of Square Robot, said in a news release. "The SR-3HT employs both active and passive cooling technology, greatly expanding our operating envelope. A great job done (again) by our engineers delivering world-leading technology in record time.”

The company's SR-3 submersible robot and Side Launcher received certifications earlier this year. They became commercially available in 2023, after completing initial milestone testing in partnership with ExxonMobil, according to Square Robot.

The company closed a $13 million series B round in December, which it said it would put toward international expansion in Europe and the Middle East.

Square Robot launched its Houston office in 2019. Its autonomous, submersible robots are used for storage tank inspections and eliminate the need for humans to enter dangerous and toxic environments.

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This article originally appeared on EnergyCapitalHTX.com.

Houston's Ion District to expand with new research and tech space, The Arc

coming soon

Houston's Ion District is set to expand with the addition of a nearly 200,000-square-foot research and technology facility, The Arc at the Ion District.

Rice Real Estate Company and Lincoln Property Company are expected to break ground on the state-of-the-art facility in Q2 2026 with a completion target set for Q1 2028, according to a news release.

Rice University, the new facility's lead tenant, will occupy almost 30,000 square feet of office and lab space in The Arc, which will share a plaza with the Ion and is intended to "extend the district’s success as a hub for innovative ideas and collaboration." Rice research at The Arc will focus on energy, artificial intelligence, data science, robotics and computational engineering, according to the release.

“The Arc will offer Rice the opportunity to deepen its commitment to fostering world-changing innovation by bringing our leading minds and breakthrough discoveries into direct engagement with Houston’s thriving entrepreneurial ecosystem,” Rice President Reginald DesRoches said in the release. “Working side by side with industry experts and actual end users at the Ion District uniquely positions our faculty and students to form partnerships and collaborations that might not be possible elsewhere.”

Developers of the project are targeting LEED Gold certification by incorporating smart building automation and energy-saving features into The Arc's design. Tenants will have the opportunity to lease flexible floor plans ranging from 28,000 to 31,000 square feet with 15-foot-high ceilings. The property will also feature a gym, an amenity lounge, conference and meeting spaces, outdoor plazas, underground parking and on-site retail and dining.

Preleasing has begun for organizations interested in joining Rice in the building.

“The Arc at the Ion District will be more than a building—it will be a catalyst for the partnerships, innovations and discoveries that will define Houston’s future in science and technology,” Ken Jett, president of Rice Real Estate Company, added in the release. “By expanding our urban innovation ecosystem, The Arc will attract leading organizations and talent to Houston, further strengthening our city’s position as a hub for scientific and entrepreneurial progress.”

Intel Corp. and Rice University sign research access agreement

innovation access

Rice University’s Office of Technology Transfer has signed a subscription agreement with California-based Intel Corp., giving the global company access to Rice’s research portfolio and the opportunity to license select patented innovations.

“By partnering with Intel, we are creating opportunities for our research to make a tangible impact in the technology sector,” Patricia Stepp, assistant vice president for technology transfer, said in a news release.

Intel will pay Rice an annual subscription fee to secure the option to evaluate specified Rice-patented technologies, according to the agreement. If Intel chooses to exercise its option rights, it can obtain a license for each selected technology at a fee.

Rice has been a hub for innovation and technology with initiatives like the Rice Biotech Launch Pad, an accelerator focused on expediting the translation of the university’s health and medical technology; RBL LLC, a biotech venture studio in the Texas Medical Center’s Helix Park dedicated to commercializing lifesaving medical technologies from the Launch Pad; and Rice Nexus, an AI-focused "innovation factory" at the Ion.

The university has also inked partnerships with other tech giants in recent months. Rice's OpenStax, a provider of affordable instructional technologies and one of the world’s largest publishers of open educational resources, partnered with Microsoft this summer. Google Public Sector has also teamed up with Rice to launch the Rice AI Venture Accelerator, or RAVA.

“This agreement exemplifies Rice University’s dedication to fostering innovation and accelerating the commercialization of groundbreaking research,” Stepp added in the news release.