. Medical office occupancy is relatively stronger than the commercial office sector and was significantly less disrupted by pandemic, with medical office asking rents averaging 2% growth year over year for the past five years and reaching an average $23 per square foot triple net by mid-year 2022. At HBRE, we have a team of healthcare real estate advisors that monitors trends and guides our medical clients accordingly. While technology will certainly play a role in the future of healthcare real estate, the need for physical space for procedures will remain a vital part of the health industry. HealthCare Appraisers is pleased to present its 2022 Medical Office Fundamentals Outlook, which is the product of discussions with numerous lenders, real estate brokers, investment bankers, and various other medical office entities, on subjects such as industry drivers, financial markets, capitalization rates, internal rates of return, as well as current trends and overall market conditions. This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. For the first time, medical office cap rates are now lower than traditional suburban office cap rates which is indicative of growing investor demand and optimism about the sector. Equity Analyst, 360 Huntington Fund. According to CoStar, a commercial real estate database, MOB asking rents average around $22.30 per square foot (NNN). Moving forward, its not unthinkable to have medical providers give patients pagers like they would get at a restaurant, which would allow patients to go run errands or do other shopping on-site while remaining close by. Those patents are now lining up for visits, which has created a backlog of demand for healthcare services. Her work appears daily on GlobeSt.com and regularly in Real Estate Forum Magazine. According to Stifel healthcare investment banking leaders, healthcare spending is currently about 18.5% of the GDP. Demand remains high and the tenant base is stable, leading to healthy interest from real estate investors. One Medical, whose parent is called 1Life Healthcare Inc., operates 182 medical offices in 25 markets in the United States. New York follows with 1.6 MSF. There is currently an excellent market for veterinary real estate, and DVMs are finding it lucrative to sell their properties while remaining in the facility and continuing their practice. The decline in healthcare employment was a result of some patients pausing treatments and rescheduling routine visits during the depths of the pandemic. The report provides a ranking of total number of projects, total square feet and total construction value for the top developers. If there is one thing we can take away from 2020, it is that healthcare must be delivered physically and virtually. These referral patterns dictate multiple practices located near each other. Prepare for future growth with customized loan services, succession planning and capital for business equipment or technology. Commercial real estate has also found innovative ways to increase the affordable and workforce housing supply. This development is just one factor guiding industry leaders to believe healthcare real estate is heading in a positive direction in 2022. Now in its 15th year, the HREI Resource Guide is the directory healthcare providers turn to when they need HRE professional services. As investors plan for 2022, Meridian CEO John Pollock is predicting three trends will drive activity healthcare real estate. Marketbeat analyzes quarterly market activity including supply, demand and pricing trends. Like most asset classes, MOBs were adversely affected by the pandemic in 2020, although healthcare real estate was fairly stable and didn't experience the downturn seen by the office, retail and hospitality sectors. The rise of telehealth initially created some concern that physicians would exit the medical office space instead of greater telehealth accessibility, but that has not proven the case. Sign In Now, This is Why Multifamily Developers Have Soured on the Sunbelt, CRE Prices Could Fall 40% This Year in an Adverse Fed Planning Scenario, CRE Prices Slide at a Rate Not Seen Since 2010, Experts Keep Guessing at When the US Will See a Recession, Bed Bath & Beyond Closing All Stores in Canada. Ownership of medical office buildings can take many forms, ranging from physician-owned properties and those owned by hospital systems to properties owned by much larger real estate investment groups, including real estate investment trusts (REITs) and other institutional investors. So 2023 development and sales volume will [], FOR IMMEDIATE RELEASE The five assets total 179,000 square feet and span four states New York, NY (February 28, 2023) Newmark announces the $72.7 million sale of a fivebuilding, Class A medical office building portfolio. This is significant because as multifamily prices continue to rise, MOB properties will become a more attractive alternative for those looking for potentially greater returns. It only took a global pandemic for people to reconsider. LA and NY have higher rates, but vacancy is lower. Class B medical office real estate falls somewhere in between and may have Class A and Class C real estate characteristics depending on the property. When considering a MOB investment, one of the first things to look at is population density. Download this eBook and learn how CRE professionals can proactively manage economic challenges by leveraging the power of data. Are you an investor? To put these costs in perspective, medical office buildings cost an average of $498 per square foot to build compared to distribution centers ($214/SF), strip malls ($245/SF), and traditional suburban office ($313/SF). One source lists several health tech trends that will either emerge or continue in 2022. In July 2022, the Company sold its medical office building located in Germantown, Tennessee receiving gross proceeds of $17.9 million, resulting in a gain on sale of $6.8 million. Medical office tenants appreciate the proximity to other retail anchors like grocery stores and pharmacies, local neighborhood services that already draw their target demographic. Enter your email above to receive messages about offerings by Informa, its brands, affiliates and/or third-party partners, consistent with Informa's Privacy Policy. Today, the medical office has emerged as a darling among commercial real estate asset classes. Among respondents, 84 percent indicated plans to be net buyers in the market in 2022, compared to only 14 percent with plans to be net sellers. 2022 HealthCare Appraisers, Inc. | All rights reserved. Ending mid-2020, statistics show a similar amount of new MOB space being delivered in these top 10 markets. The 2022 Outpatient Real Estate Development Report provides a wealth of information on medical office and other outpatient properties started and completed in 2021 by 3rd party developers. This website provides preliminary and general information about the Investments and is intended for initial reference purposes only. Our focus on this niche sector allows us to gain the unique skills necessary to serve this specialized market segment. Copyright Wolf Marketing & Media LLC 2002-2023 Healthcare Real Estate Insights. This will provide insight into the types of physicians looking to lease MOB space in that vicinity and the kind of healthcare practice that will dictate how much space those physicians need. This should all be considered when buying a MOB or trying to figure out what types of physicians to attract to medical office property. Leasing activity fell 10.8% in the fourth quarter to 40.7 million s.f. We focus our investments on net leased properties. There was not much of a downturn in construction activity for MOBs, and rents are holding up well. Life sciences may continue to be a strong player within healthcare real estate in 2022. Absorption rates are especially high in the Sun Belt region where robust population growth is driving demand for medical office space. Is the Red-Hot Industrial Market Beginning to Cool? In 2020, the average price per square foot rent for MOB buildings increased by a more substantial 5.5%, a factor attributed to limited supply. The sheer variety of medical office properties is what makes the space so compelling from an investment standpoint. In fact, healthcare occupations are projected to add more jobs than any other sector something the BLS attributes to the nations aging population and growing demand for healthcare services. All Rights Reserved. In 2020 and 2021, we released an overview of upcoming healthcare real estate trends. With medical office buildings, the requirements for space generally depend on the number of providers and their associates who plan to occupy the building. It is unclear how technology will impact the full scope of healthcare real estate in the future. Healthcare real estate is continuously adapting to demand and the market at large. What does this mean for CRE professionals? Working from home was relatively rare for the workforce prior to the pandemic, but it quickly became popular and is expected to maintain momentum through the upcoming year. Weakening fundamentals and higher cost of capital will generally . How Do I Choose the Best Medical Building? SingleFamily, MultiFamily, OffMarket, Bergen County . Alliance invests in commercial real estate across the US. Discover the latest numbers, news and market moves to know about each week with Ginger Chambless, Commercial Bankings Head of Research. Were not just motivated to close deals to make you money, were actively sharing in those wins and losses as well. There are also natural referral patterns between hospitals and physician practices, so locating in close proximity has traditionally made a lot of sense. No communication by EquityMultiple, Inc. or any of its affiliates (collectively, EquityMultiple), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice. Download this whitepaper to learn which top retail CRE brands are poised for big things in 2023. Construction of new medical office buildings tends to lag the construction of other property types, in large part because these facilities are expensive to build and often require purpose-built facilities. Source: CBRE US Research, Medical Office Trends 2021: https://www.cbre.us/research-and-reports/US-Medical-Office-Trends-2021. There are also costs, like ongoing property management, that should be factored into a prospective investors budget before moving forward with a deal. Medical offices may also be located on the second or third floor above ground-floor retail. Based on independent reports of properties and portfolios $2.5 million and greater. 2023 Informa USA, Inc., All rights reserved, Target Needs to Make You Want to Spend Again, Six Reasons 2023 Is the Year of the 1031 Exchange, 10 Must Reads for CRE Investors Today (Feb. 28, 2023), Goldman Turns to Make-or-Break Unit as Solomon Put to Test, For Many Homebuyers, Its New Construction or Nothing, The 12 Best Business Books of 2022 for Advisors, The Most-Revealing Onboarding Questions Advisors Ask, Institutional Investors Take a Temporary Break on Medical Office Buys, Medical Office Deals Slow Down as Rising Rates Reset Price Expectations, Thanks to Pandemic Puppies, CRE Investors Are Turning Their Attention to Veterinary Clinics, Amazon to Buy One Medical for $3.49 Billion in All-Cash Deal, Litt Opposes Healthcare Realty Deal After Alternative Snubbed, Strong Demand for Health Services Drives Medical Office Development, The Medical Office Sector Continues to Hold Steady, Healthcare Realty Trust to Acquire Rival Medical-Office Owner, Elliott Pushes for Sale of Healthcare Trust of America, More Office Properties Are Becoming Labs in Top Life Sciences Cities, DigitalBridge Agrees to Sell Wellness Portfolio for $3.2 Billion, Macquarie to Buy 50% Stake in Medical Properties Trust Portfolio, Medical Tenants Appetites for Retail Space Remains Robust. Nationally, there was 15.3 million square feet of net absorption in 2020 with just 13.7 million square feet of space delivered. According to a survey of medical office landlords, collection rates averaged 95% even during the depths of the pandemic. The average cap rate for individual MOB sales dropped to 6.61% during this same time (dipping below the previous record lows of 6.7% in Q3 2016). The awards are presented by Minnetonka-based HREI,the [], Posted in Breaking News, Companies & People, Current Edition, HREI Insights Awards, The estimated $140M deal seeds a programmatic partnership between the two firms By John B. Mugford Portfolio recapitalizations have been taking place at a rapid clip in the healthcare real estate (HRE) sector in recent years, including a record-setting 10-plus such deals in 2021. to register for our FREE healthcare real estate and/or life sciences real estate e-newsletters. We maintain an ongoing relationship with healthcare industry personnel to ensure we are keeping up with the latest news in the sector. However, increasingly, there is demand for medical offices located in more suburban and rural areas as patients seek care closer to home. Related: Are You Investing Enough for Retirement? Medical office space is as diverse as the healthcare industry itself. Net income attributable to common stockholders was $13.3 million, or $0.20 per diluted share, as compared to $11.8 million, or $0.19 per diluted share, in the comparable . Number 8860726. An individual investor or real estate investment trust, for example, may not be subject to the same regulatory oversight. Your article was successfully shared with the contacts you provided. Moreover, rents are now on the rise. As described above, the first is property class, Class A, B, or C. A prospective investor needs to have a solid understanding of their competition, including the extent of that competition and the quality of that competitionincluding both quality of the physical building(s) as well as the quality of both management and physician tenants. Medical office transactions slowed in Q2 2022 compared to Q2 2021 levels. Nevertheless, the industry is experiencing unprecedented change across the continuum of managing, leasing and developing healthcare facilities, requiring innovative strategies to confront economic shifts, capital constraints and the transformation of healthcare delivery. Investing in securities or real property investments (the ""Investments"") listed on EquityMultiple pose risks, including but not limited to market risk, credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Are you considering commercial real estate investments? Retailers faced a wide range of challenges in 2022. As more people show up in the office, its culture evolving. In other words, they have the money to elevate and stabilize these otherwise outdated properties to help bring them up to a different marketable standard. These deals range in value from $1M to $25M. Landscape version of the Flipboard logo . Revista (a medical property research platform) showed average asking net rates around $21.40/SF at the same time. According to CoStar, a commercial real estate database, MOB asking rents average around $22.30 per square foot (NNN). JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. New acquisitions of medical office buildings by institutional investors reach a record high in 2020. Using Debt for Real Estate Investing: Is It a Good or Bad Idea. Lee Asher, [], Frisco Medical Pavilion II Receiving Interest from Healthcare Users Across Specialties (FEB. 23, 2023 DALLAS) Caddis Partners hosted a groundbreaking to commemorate Frisco Medical Pavilion II. Traditionally, they have been located on or near hospital campuses, given the referral patterns between physicians and affiliated hospitals. Or to subscribe to the monthly HREI magazine for even more comprehensive news and analysis, please click here. Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business. Facebook Linkedin Twitter Youtube Instagram TikTok. Trends indicate that doctors and patients alike prefer a multi-sensory, face-to-face examination that simply cannot be achieved via video conferencing. Medical office real estate was once considered so highly specialized that few individual investors wanted to add it to their portfolios. Given the lack of new construction, it is no surprise that MOB net absorption outpaced new supply across the nations top 50 metro areas last year. Terms of Use Environmental real estate trends will be key in 2022. ft. of medical office development currently in the construction pipeline throughout the United States. Our professional team continually analyzes the market for excellent opportunities. The last three to four years, medical office and office buildings have run in tandem. Reference purposes only office property, its culture evolving pandemic for people to reconsider, demand and the market large. We can take away from 2020, it is unclear how technology impact... Statistics show a similar amount of new MOB space being delivered in these top 10 markets was! 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