NEW YORK CITY—Economic and office leasing conditions are expected to bolster the medical office space segment throughout 2016, according to a new report.
Colliers International Group says this year will bring continued strong demand for medical office space and strengthened investor appetite driven by higher yields, low interest rates and stable tenants. The firm's 2016 Healthcare Marketplace research report also indicates that the retail sector can expect to a boost in medical office leasing as clinics and urgent care centers take space in shopping centers where traditional brick and mortar retailers have left vacancies.
"In a push to lower costs, healthcare providers have been shifting care away from hospitals to outpatient facilities for several years. This ongoing movement further increases demand for medical office space," says Mary Beth Kuzmanovich, national director of healthcare services for Colliers. "Existing facilities will have to be renovated and new buildings will need flexible designs to keep up with emerging healthcare technology, which is transforming how and where patient care is delivered."
Despite focused efforts to reduce healthcare costs, Colliers' analysis finds that costs will continue to rise. A larger pool of actively insured Americans—due in part to the Affordable Care Act combined with an ever-growing aging population—is driving health expenditures higher—topping $3 trillion in 2014 and projected to reach nearly $5.5 trillion in 2024.
As a result, hospitals and healthcare systems are actively seeking ways to cut costs and reduce spending while improving the quality of care, Colliers says. The "retailization" of healthcare continues to gain ground as an answer to lowering costs and providing more accessible locations. Also, mergers and acquisitions of physician practices, hospitals and healthcare systems are widespread as larger, combined organizations pursue greater negotiating leverage and improved efficiencies.
Still, investor demand for quality assets with credit tenants remains strong. Investors not accustomed to medical office properties have been drawn to the sector through the availability of debt, shrinking yields in other asset classes and demographics that point to massive growth in demand.
Supporting those claims, according to Colliers, has been a spike in both demand and development. Through three quarters of 2015, the vacancy rate stood at 9.5%, representing a drop of 30 basis points from the same period in 2014, 130 basis points down from the peak in 2010.
Also, the report states,new medical office construction is expected to surpass 38 million square feet by year-end, with a total value of $18.3 billion.
Healthcare systems are attracted to the lower costs associated with operating in existing real estate footprints and keeping minor medical issues out of expensive emergency departments. A study by Accenture, quoted by Colliers, finds the number of retail clinics is projected to nearly double from 1,418 in 2012 to 2,805 in 2017
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Rayna Katz
Rayna Katz is a seasoned business journalist whose extensive experience includes coverage of the lodging sector, travel and the culinary space. She was most recently content director for a business-to-business publisher, overseeing four publications. While at Meeting News, a travel trade publication, she received a Best Reporting award for a story on meeting cancellations in New Orleans during Hurricane Katrina.
