July 14, 2017
By Dennis Kaiser
Medical office buildings and related healthcare facilities are emerging as a vital asset class for CRE investors to consider. The combination of an aging America, healthcare business strategies, shifts in where people receive healthcare services and retail vacancies add up to new opportunities.
Connect Media asked Avison Young’s Julie Johnson, a leader in healthcare real estate for more than 25 years, to share insights about why the healthcare sector is so hot. She recently completed a land sale in Phoenix involving HealthSouth Corp and Dallas-based McFarlin Group. The 6.9-acre site is being developed as a senior assisted living and memory care community.
Here’s what Johnson shared about the trends driving the MOB market, and where she sees it headed in our latest 3 CRE Q&A.
Q: Describe the current state of medical office building market in Phoenix?
A: The Metro Phoenix medical office market continues to improve with positive absorption and increased leasing in multi-tenant MOBs, as well as build-to-suit outpatient facilities for hospitals and other large healthcare providers. Although medical office sales volume has decreased over the last few quarters, cap rates have compressed to 6.2% (average and median cap rate) as of the first quarter 2017 and price per square foot has modestly increased as well.
Q: What trends are you seeing?
A: Micro-hospitals that provide inpatient care to both acute care patients as well as specialty hospitals, such as orthopedic, women’s care or rehabilitation, are on the rise. Additionally, larger suites to accommodate the multi-disciplinary practices that are either hospital-sponsored or are larger merged practices continue to be a growing trend in well-located, high-trafficked suburban areas.
Q: How do you see the market performing over the next 12 months and why?
A: Although the next healthcare bill that passes will replace the ACA, the movement toward consolidation, efficiency, patients as consumers, wellness, and quality outcomes will all continue to drive new locations for healthcare delivery. Updated buildings with integrated technology to service the needs of today’s healthcare provider will only increase in demand. Investment sales will remain substantial as MOBs are now considered a main asset class as more hospitals as tenants are increasing the asset’s credit and value. And finally, rising construction costs will also have a hand in elevating lease rates and MOB values.
For comments, questions or concerns, please contact Dennis Kaiser