What happens in Houston’s healthcare sector matters everywhere. With the largest collection of hospital systems in the world, the Bayou City serves as a bellwether for the industry at large. As hospital systems and other healthcare providers rethink how they deliver care, many are changing their real estate strategies entirely. With Houston’s energy sector still struggling, healthcare will once again be the city’s largest job creator in the coming year.  Flickr Texas Medical Center in Houston Where and how healthcare is being provided will continue to shift in 2020. The change starts at Houston’s healthcare epicenter, the Texas Medical Center, where the long-awaited TMC3 expansion project will break ground later this year. The 37-acre campus will add 1.5M SF of collaborative research space, integrating commercial operations with the Texas Medical Centers’ institutional knowledge.  “We didn’t want to create an isolated district — we’re creating a hub,” said Elkus Manfredi CEO David Manfredi, whose firm is designing TMC3. “It’s the glue that makes the connections between all these.” With the Med Center leading the way, change will radiate outward toward Houston’s suburbs. The campus’ dense, Inner Loop location is great for collaboration, but its accessibility is a problem for residents in Houston’s sprawling population centers. Outpatient facilities have become common, with nearly every hospital system growing its outpatient care footprint. It comes down to billing. For the third year in a row, the top Houston-area hospitals reported average outpatient revenues grew, and now account for nearly half of total patient revenue, according to Colliers research. Courtesy of Texas Medical Center Texas Medical Center in Houston “I see a lot more outpatient construction coming,” Colliers Senior Vice President Beth Young said at the Houston Hospital, Outpatient Facilities & MOB Summit hosted by SquareFootage.Net. TMC institutions like MD Anderson, UTMB Health, Memorial Hermann, Houston Methodist and CHI St. Luke’s have all recently completed suburban expansions or are in the process of doing so.  “The market is trending towards healthcare services,” CBRE Senior Vice President Brandy Bellow Spinks said. “Bellaire and the Museum District are pockets to keep your eye on.”  Despite a robust healthcare sector, medical office building investment sales have lagged compared to recent years. There simply isn’t enough product to satisfy investors’ interest. High-profile institutional-grade medical office buildings and multi-building portfolios are few and far between.  Young said private investors are snapping up properties under $20M, while REITs are hungry for assets over $20M. Cap rates vary significantly among asset classes. Young said off-campus medical office buildings can be as high as 6.8%, while premium properties are as low as mid-4%.   Pixabay/DarkoStrojanovic Overall, both Young and Bellow Spinks think 2020 will be another good year for Houston’s healthcare sector. Once again, healthcare will create more jobs in Houston than any other industry, growing by an estimated 7,900 jobs in 2020, according to the Greater Houston Partnership. Even in the face of national economic headwinds, Houston’s healthcare industry is recession-proof, according to Young. If there is one thing that could hold the industry back, it is a robust pipeline.  “There’s quite a bit under construction or proposed,” Bellow Spinks said. “If those buildings break ground, in some markets it could be interesting. That’s something to be aware of.”

Two experienced real estate brokers are placing a bet on themselves. Nate Newman and Logan Kelly, formerly of Marcus & Millichap, have launched their own brokerage firm, Newman Kelly Real Estate Investment Services. The duo will specialize in the sale and development of retail, office and industrial property in Houston. “You get to a point where you want to be a part of building something from the ground up that reflects your own DNA,” Newman said. Establishing his own firm has been the ultimate goal for Newman since he got into the business over a decade ago. In 2014, he began Newman Development Corp., which has developed three retail build-to-suits, one medical office building and one large-scale mixed-use development of 107 acres.  “Real estate is generational wealth because you can pass it on from generation to generation,” Newman said. “It is just a great way to be able to preserve wealth.”  Newman’s career started at the beginning of the Great Recession in 2007. He said that the period taught him valuable lessons in humility, determination, and hustle. He joined Marcus & Millichap in 2013 and opened The Woodlands office. He sold more than $300M in property value with an average final price of 96.37% of list price.  Kelly served as an investment analyst at LMI Capital. He closed over $150M in debt from conduit, agency and bank lenders. In 2015, Kelly went to work with Newman at Marcus & Millichap. Together, they closed on $50M of retail, office and industrial assets.  “It was a good time to pull the ripcord and go out on our own,” Kelly said. “The market has been great so far. We know a lot of people: buyers and sellers. And, we built up enough relationships throughout the city.”

Commercial real estate giant JLL announced plans to purchase Peloton Commercial Real Estate Thursday. The merger will effectively pull Peloton’s Dallas and Houston offices into JLL’s agency leasing and property management business lines.  Ricky Bautista, Unsplash Downtown Dallas As part of the merger, more than 130 Peloton employees will be joining JLL. The acquisition is expected to close in the next few weeks, with Peloton co-founding partners Joel Pustmueller and T.D. Briggs and JLL’s Jeff Eckert leading the statewide integration efforts.  Pustmueller and Briggs will work directly with the Dallas-Fort Worth and Houston offices while Eckert will oversee Austin, San Antonio, and Dallas-Fort Worth as the teams integrate.  Peloton Property Management partner John Myers will be named regional leader of property management for DFW. “This is a momentous step in our journey to become a market-leading player in Texas,” said David Carroll, JLL market director for the South Central Region. “With the exceptional growth we have seen in those markets, Peloton’s position as a leading provider of leasing and property management services will greatly enhance our business capabilities and breadth of services. Just as importantly, we look forward to working with a team of professionals that share JLL’s strong commitment to collaboration and culture.” JLL has a long history of growing via mergers and acquisitions, including closing the $2B acquisition of HFF July 1. One of its most notable acquisitions in Texas was bringing The Staubach Co., led by Dallas Cowboys elite quarterback Roger Staubach, into its fold in 2008. Peloton is a leasing and property management firm that launched in 2002. It manages or leases more than 25M SF for clients.

Houston has, for the most part, survived the oil downturn, but some areas are still in recovery.

Though Houston’s commercial real estate market is doing well overall, the office sector is still struggling with high vacancy rates.

Eli Gilbert, director of research at commercial real estate firm JLL in Houston, said this has to do with oversupply and jobs lost during the downturn.

Also, companies have learned to be more efficient with less space.

“Looking at the overall vacancy rate,” he said, “particularly in the office market, in the future, a higher value that has historically been seen may become the new normal for the region.”

The office vacancy rate is currently around 20%, with estimates placing the amount of vacant office space between 50 and 60 million square feet, according to the Greater Houston Partnership’s 2019 Employment Forecast.

Gilbert said population growth is the main driver for the other commercial real estate sectors, which include industrial, retail and multi-family.

The industrial market, in particular, is benefiting from an increase in online sales and demand for distribution centers.

If you ask the most powerful women in commercial real estate if they ever imagined they would work in such an industry, most say not in their wildest dreams. We know, we asked. Honorees at Bisnow’s Inaugural Houston Power Women event may not have planned to end up working in real estate, but they have helped evolve an old school industry into one that is attracting new talent from every walk of life. Bisnow/Catie Dixon Transwestern Executive Managing Director Jan Sparks, JLL Senior Managing Director Susan Hill, city of Houston Deputy Director of Economic Development Gwen Tillotson, The Richland Cos. CEO Edna Meyer-Nelson, Veritex Bank Senior Vice President Rhonda Sands, Laughlin Consulting Group CEO Elke Laughlin “It boils down to building a team of individuals that are culturally different in race, gender and age,” JLL Senior Managing Director Susan Hill said. “Real estate is no longer owned by a high net worth private family. Commercial real estate looks different; your team needs to look different.”  That diversity can lead to business success. Commercial Real Estate Women’s recent white paperbacks up what women in Houston are seeing locally. Companies in the top 25% for gender diversity are 15% more likely to have returns above industry median, according to CREW. Women now occupy 43% of commercial real estate positions industry-wide.  “Diversity is more than race or gender, it’s ideas, it’s background. You need a team with different ideas and different ways of communicating to make sure you’re getting the best from everybody,” Veritex Bank Senior Vice President Rhonda Sands said.  Bisnow/Catie Dixon Bisnow Houston Power Women: The Richland Cos.’ Edna Meyer-Nelson and JLL’s Susan Hill surrounded by the Richland Cos. team — Nancy Baugher, Jody Merritt, Clay Steadman, Josephine Duncan, Angie Steadman, Jennifer Theriot and Raven Burleson “It boils down to building a team of individuals that are culturally different in race, gender and age,” JLL Senior Managing Director Susan Hill said. “Real estate is no longer owned by a high net worth private family. Commercial real estate looks different; your team needs to look different.”  That diversity can lead to business success. Commercial Real Estate Women’s recent white paperbacks up what women in Houston are seeing locally. Companies in the top 25% for gender diversity are 15% more likely to have returns above industry median, according to CREW. Women now occupy 43% of commercial real estate positions industry-wide. Today, for the most part, women are playing on the same field as men in Houston’s commercial real estate sector. Many women and some of Bisnow’s honorees are outearning their male counterparts. As heavy-hitters and C-suite executives, Houston’s power women have not only changed the landscape of one of the most male-dominated industries, they are leaving a lasting legacy for the next generation.