In addition, last year's tally shot past the prior annual peak of $7.3 billion in 2006. However, CBRE notes that Q1 of this year saw a decline in volume compared to quarterly totals over the past few years, due likely to “greater uncertainty stemming from potential changes to US healthcare policy.”

One byproduct of that uncertainty is increased pressure on healthcare providers to reduce costs amid a lack of clarity on reimbursement rates from Medicare and Medicaid and private insurance companies alike, and to improve patient outcomes. While adopting new technologies is one method for improving healthcare outcomes, the upfront capital required means either that costs have to increase or must be trimmed elsewhere.

CBRE's report, its first to focus squarely on the medical office sector, identifies a number of ways in which healthcare providers are attempting to reduce costs. Among them are relocating services closer to where patients live, utilizing video technology to meet with patients remotely and moving more patient volume away from the highest-cost facilities—namely, hospitals—and into lower-cost outpatient facilities, including MOBs and urgent-care facilities.

“The evolution of medical technologies is boosting demand for newer product with the infrastructure capable of handling cutting-edge devices and systems,” says Jim Hayden, executive managing director, healthcare with CBRE's Global Workplace Solutions platform. “Medical office space that helps providers minimize costs and maximize outcomes, including buildings that support collaboration and can accommodate new technologies that help them achieve these goals, will likely remain in favor.”

LOS ANGELES—At a national average of 8% as of the first quarter of this year, medical office building vacancies come in considerably lower than the 13% average for the US office sector as a whole, says a new report from CBRE. Furthermore, the decline in vacancies has accelerated over the past nine quarters, and MOB absorption has outpaced new additions to supply over the past seven years.

An aging US population—with the ranks of seniors expected to more than double to 92 million by 2055–pressure for healthcare providers to cut costs and new technologies all have driven growth. “The steep increase in the 65+ population and anticipated greater need for in-office physician services by this group signals a continued increase in demand for healthcare services and medical office space in the years ahead,” says Andrea Cross, CBRE's Americas head of office research.

Accordingly, investor interest in the sector has risen dramatically since 2010, with annual sales of medical office properties totaling 10,000 square feet or more increasing from just under $4 billion in '10 to $10.2 billion in 2016, CBRE says. Cap rates have come in by 150 basis points over the past seven years, decreasing from a high of 8.3% in mid'-'10 to 6.8% as of Q1 2017.

“As investor appetite for healthcare-related real estate has grown, medical office buildings have emerged as the most popular property type within the sector,” says Chris Bodnar, EVP, healthcare, CBRE Capital Markets. “As yields for traditional real estate asset classes have compressed in recent years, new capital sources—including foreign capital—have entered the medical office sector in search of stability to hedge against any potential correction in the global markets.”

In addition, last year's tally shot past the prior annual peak of $7.3 billion in 2006. However, CBRE notes that Q1 of this year saw a decline in volume compared to quarterly totals over the past few years, due likely to “greater uncertainty stemming from potential changes to US healthcare policy.”

One byproduct of that uncertainty is increased pressure on healthcare providers to reduce costs amid a lack of clarity on reimbursement rates from Medicare and Medicaid and private insurance companies alike, and to improve patient outcomes. While adopting new technologies is one method for improving healthcare outcomes, the upfront capital required means either that costs have to increase or must be trimmed elsewhere.

CBRE's report, its first to focus squarely on the medical office sector, identifies a number of ways in which healthcare providers are attempting to reduce costs. Among them are relocating services closer to where patients live, utilizing video technology to meet with patients remotely and moving more patient volume away from the highest-cost facilities—namely, hospitals—and into lower-cost outpatient facilities, including MOBs and urgent-care facilities.

“The evolution of medical technologies is boosting demand for newer product with the infrastructure capable of handling cutting-edge devices and systems,” says Jim Hayden, executive managing director, healthcare with CBRE's Global Workplace Solutions platform. “Medical office space that helps providers minimize costs and maximize outcomes, including buildings that support collaboration and can accommodate new technologies that help them achieve these goals, will likely remain in favor.”