Medical Office Forecasts Emphasize Stability

INDIANAPOLIS-Soon after the recession began taking its toll on the office market in the form of diminishing demand, higher vacancies and negative absorption numbers, those who track the medical office market―and some who previously paid little attention to it―began remarking on how this one segment of the office market was marching to its own tune. Medical office marches on, according to some new reports about the healthcare-related segment. The reports foresee stability and growth for the medical office segment despite the dismal forecasts for general office space, although the medical office portion of the market has not been spared entirely.

“There will be a significant increase in both short- and long-term demand for medical offices and outpatient facilities,” declares a new report from BremnerDuke Healthcare Real Estate, the healthcare facilities development arm of publicly held Duke Realty Corp. Deeni Taylor, executive vice president of BremnerDuke, notes that during the past two years, BremnerDuke medical office properties have performed favorably, with occupancy remaining near 90%. Taylor notes that, during the past year, Duke Realty has raised more than $1.5 billion in capital, “which will enable us to efficiently take advantage of these opportunities,” Taylor says.

A report by Marcus & Millichap points out that, even with the turmoil in the economy, only 1% of MOBs are now distressed, equating to just $200 million in troubled loans, compared with almost $20 billion for the 3% of traditional office assets now at risk. Nonetheless, Marcus & Millichap points out, the MOB segment remains under pressure. “Recessionary stresses and rising medical costs have kept aportion of the US population on the sidelines for elective outpatient care, easing demand for physicians’ services and,in turn, medical space,” the report states. As a result, deliveries of new medical space have recently outpaced absorption and vacancy has ticked up, forcing operators to lower rents in an effort to keep occupancy levels in check, according to the Marcus & Millichap report.