Houston’s medical office market is showing early signs of stabilization in Q1 2026 following a supply-driven softening throughout 2025. Vacancy remains elevated at 18.3%, though improving tenant demand is evident, with absorption of 140,104 SF outpacing 119,591 SF of new deliveries. This trend highlights continued occupier resilience even as the market works through recent supply additions. Construction activity has moderated significantly to 367,535 SF, helping to ease future supply pressure. Asking rents have softened slightly to $29.73 per SF, reflecting a -0.4% year-over-year decline and a shift toward more measured growth. Investment activity remains steady, with 71 sales at a 7.0% cap rate and pricing around $299 per SF, underscoring continued investor interest in the sector.

Key Findings

• Market Vacancy and Demand: Vacancy remains elevated at 18.3% but is showing early signs of stabilization, as absorption continues to outpace new deliveries. Improving demand is helping support occupancy and contributing to a gradual market adjustment.
• Rent Trends and Pricing: Vacancy remains elevated at 18.3% but is stabilizing as absorption outpaces new deliveries. Asking rents have edged down to $29.73 per SF (-0.4% YOY), while demand continues to support occupancy and rebalance the market.
• Development and Investment Activity: Construction activity has moderated to 367,535 SF, easing near-term supply pressure, while investment remains active with 71 sales at a 7.0% cap rate and $299 per SF. Capital continues to target well-positioned assets supported by stable demand fundamentals.

Houston Demographics

Source: CoStar Group, Inc.

Unemployment Rate: 4.6%

Households: 2,837,188

Current Population: 7,948,642

Median Household Income: $84,038

Rents

Asking rents have begun to stabilize heading into Q1 2026 after several years of steady growth. Rates have largely plateaued in the low-$30 per SF range, averaging about $30.20 per SF, with modest fluctuations between the high-$28 and low-$30 range over the past year. This leveling reflects a normalization in pricing as new supply has eased landlord leverage, while rents remain elevated and supported by steady underlying demand.

 

Market Asking Rent Per SF

Source: CoStar Group, Inc.

 

Vacancy

Vacancy trended upward through 2025, reflecting the impact of new supply on occupancy. After peaking in the mid-15% range, vacancy has begun to stabilize, easing to roughly 14.0% in Q1 2026. While still elevated relative to prior periods, recent declines suggest demand is starting to absorb new deliveries. With improving absorption and a slowing development pipeline, vacancy is expected to continue stabilizing in the near term.

Vacancy Rate

Source: CoStar Group, Inc.

 

Construction

The Houston medical office development pipeline has contracted meaningfully heading into Q1 2026, falling to roughly 367,500 SF, its lowest level in several years. This marks a sharp pullback from peak construction activity near 2.0 million SF in 2023, as developers have scaled back new starts in response to rising vacancy and recent supply additions. The sustained decline throughout 2025 signals a more cautious development environment and a shift toward rebalancing supply and demand. With significantly less space underway, the market is better positioned to absorb existing inventory and stabilize fundamentals in the near term.

SF Under Construction

Source: CoStar Group, Inc.

Sales

Transaction activity in the Houston medical office market moderated in Q1 2026, with 71 sales recorded, down from higher levels in prior periods. Despite softer volume, pricing fundamentals remain stable, with assets trading around $299 per SF at a 7.0% cap rate. While capital markets have become more selective, steady pricing suggests investor demand remains intact, with a continued focus on disciplined underwriting and targeted acquisitions.

By the Numbers

Q1 2026 | Source: CoStar Group, Inc.

# of Sales: 71

Cap Rate: 7.0%

Price Per SF: $299

Vacancy Rate: 18.3%

Rent Growth: -0.4%

Asking Rent Per SF: $29.73

SF Under Construction: 368K

SF Delivered: 120K

SF Absorbed: 140K