75+ Age Cohort Driving Health Care Demand
Population flows and per capita spending make medical office buildings attractive to investors.
The number of persons aged 75-plus group has been growing at an accelerated pace in the past decade, driving demand growth for health services at a healthy clip.
Florida and the Mid-Atlantic have been the biggest beneficiaries of this growth, according to a new report from Marcus & Millichap.
By the end of the year, this age group “will have grown by nearly 30 percent compared to 10 years ago, the greatest increase of any single age segment and more than triple the overall pace across all ages,” according to the report.
Florida has been a magnet lately for the elderly and its metros claim six of the top 15 slots for 65-plus year-over-year population growth. Mountain and Southwest metros claim the remaining top spaces, potentially driving down vacancy rates in these areas long-term.
Physician and clinical services spending trends also contribute space demand.
The mid-Atlantic has long been home to the lowest regional medical office vacancy rates.
Four of the top five states with the highest per capita spending on physician and clinical services are in the mid-Atlantic region, according to Marcus & Millichap.
The firm reported that per capita health care spending grew at an average rate of 4.5 percent from 2018-2020, faster than the 2.6 percent average growth from 2016-2018.
Marcus & Millichap said this cohort will continue expanding over the next decade, albeit at a much slower pace.
The report said that since 2012, the medical office sector has experienced consistent year-over-year rent gains and this consistency has proven “appealing” to many investors amid some macroeconomic uncertainty.
The sector’s steady property cash flow is backstopped by favorable lease terms, benefiting both vacancy and rent trends with limited tenant turnover.
“Demand for health care services on a macro level is unlikely to decrease in any meaningful way, ensuring a stable tenant base, barring external challenges that arise from the tight health care labor market,” according to the report.