April 10, 2019
Medical office building construction exceeded 12 million square feet in 2018, the highest total since 2009. But this year, despite ongoing strong demand, the construction pipeline is smaller—only nine million square feet is currently under development, according to Marcus & Millichap’s National Medical Office Report. The report attributes the decreased construction to less exuberant lending and increased development costs.
“Baby boomers remain a key driver of overall demand for medical services, while a steady rise in medical school enrollment over the past decade will meet staffing needs and support demand for medical office space nationwide,” according to the report.
The bulk of the new construction is outpatient off-campus facilities for medical groups and hospital-owned treatment centers, and the average size of new construction nationally was 45,000 square feet.
Over the past several years, as Baby Boomers migrated to the southeast and southwest, MOB construction surged in Alabama, Arizona, Georgia, and North Carolina. This year, the majority of MOB construction is concentrated in underserved communities in large metro areas in California and Texas.
Roughly 10 million square feet of MOB space has been delivered annually since 2010. With absorption continually outpacing supply, vacancy rates dipped to 8.1% in 2018, according to Marcus & Millichap. Decreased completions will further tighten the market, reducing the national vacancy rate to 8% and creating a 2.5% increase in asking rents.
Pictured above: Apollo Medical Office Building, Cary, N.C.
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