The Top Markets for Medical Office Buildings

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The medical office building sector is considered one of the safest in commercial real estate investments due to, among other factors, a national trend to lower healthcare property operating costs.

“MOBs are a lot more efficient to run, cheaper to operate and are usually leased on a triple net basis which is attractive to investors,” Rodman Schley, senior managing director of BBG tells GlobeSt.com.

According to a recently released report by BBG, between 2005 to 2016 MOBs rose by approximately 50% to about 41,000 nationwide.

“Houston, Minneapolis/St. Paul, Boston, Atlanta and Chicago have the largest concentration of MOB construction projects. Nationally, the MOB market accounted for an estimated 22 million square feet in 2018,” Schley says.

The Dallas/Fort Worth area had the nation’s highest number of MOB construction completions from the third quarter of 2017 to the second quarter in 2018, according to the report.

“The region had nearly one million square feet of medical office space added during this period,” Schley tells GlobeSt.com.

Besides lower operating costs, the increased demand for medical office buildings can be attributed to growing investor interest, convenience and technology, the overall pursuit of a healthier lifestyle, changes in reimbursement and regulations and the aging population’s need for medical care.

The average asking rental price for MOBs rose to nearly $23 per square foot, a 1.4% increase year-to-year. This is due to an increasing demand for the limited supplies of high quality, newly constructed, medical office space and other outpatient facilities.

“The rate of construction and the renovation of MOBs will continue growing,” predicts Schley. “It’s definitely a strong MOB market. We have a lot of baby boomers and they have medical needs. We’ve also become much more health conscious as a society. We are certainly not at an over saturation point in the MOB sector.”

 

Source: GlobeSt.

Influx Of Capital Into Medical Real Estate Creating New Competition For Established Players

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Growing demand for healthcare services has created a booming market for medical office buildings, bringing a host of new investors into the space and making it more challenging for the sector’s traditional players.

Anchor Health Properties Executive Vice President Katie Jacoby, whose company has been developing medical facilities for over 30 years, said she is seeing a surge of private equity competing for healthcare real estate deals.

“Ten years ago, healthcare was hardly even considered an asset class; now it’s one of the top asset classes,” said Jacoby, who will speak April 11 at Bisnow’s National Healthcare Mid-Atlantic event in D.C. “There is increased competition to purchase properties and to develop properties.”

Flagship Healthcare Properties Executive Vice President Gordon Soderlund, whose firm has been developing medical real estate since the 1980s, is also seeing more private equity firms and REITs making big investments in the healthcare space.

“There’s a lot of competition pursuing development,” Soderlund said. “Our returns on costs are being driven down because there are plenty of players to respond to an RFP … It’s even more competitive on the acquisition side. There’s so much capital chasing medical real estate right now.”

Nationwide transaction volume in healthcare real estate reached a new record in 2017, according to JLL’s 2018 Healthcare Real Estate Outlook, with a significant portion of the growth in the medical office building sector. The JLL report also found the sources of capital investing in medical office buildings are expanding. In 2017, 19% of MOBs were owned by private investors, 11% by REITs and the remaining 70% by healthcare providers, the traditionally dominant owners in the space.

The growing investment in medical real estate comes as the United States’ aging population is creating more demand for healthcare services. The number of people 65 years and older will nearly double by 2050, according to JLL‘s report, and those over 65 spend five times more on annual medical expenses.

“People see it as a stable asset class,” Jacoby said. “Everyone sees it . They have aging parents themselves … They can experience it on their own personal level.”

The types of tenants occupying medical office buildings is also evolving toward more stable operators, giving investors more confidence in the properties.  As recently as five years ago, the most common tenant in an MOB was a physician with a private practice in 3K SF to 5K SF.

“But individual private practices are less common today, with physicians being employed by health systems or forming groups of doctors,” Jacoby said. “A lot of these private doctors are now employed by the health system. If they’re not employed by a health system, consolidations of physician practices into larger conglomerates are allowing them to serve as anchor tenants similar to a health system.”

Soderlund also said he’s seeing physicians being acquired by health systems and consolidating to lease larger blocks of office space, a trend he views as a positive for landlords.

“One day we might be leasing office space to a six-physician practice, and once they’re acquired our lessee is now an investment-graded hospital system,” Soderland said. “From a credit perspective, that’s great. With more large tenants occupying medical office buildings, more investors are interested in buying the properties.

“Hospitals are consolidating, making them stronger, creditworthy tenants,” Jacoby said. “I think that makes it more attractive for other investors that have traditionally invested in other asset classes.”

Jacoby and Soderlund will discuss trends in the medical real estate industry April 11 at Bisnow’s full-day National Healthcare Mid-Atlantic event at the Washington Marriott Georgetown.

 

Source: Bisnow

Dallas Area Poised As A Growing Hub For Life Sciences Industry

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Dallas-Fort Worth is among the life sciences hubs in the nation that are positioned for major growth, according to a new report from real estate services and investment firm CBRE.

According to the report, DFW is one of the emerging hotspots for the life sciences industry and has benefited from the sector’s momentum across the nation.

CBRE said that a number of indicators suggest robust expansion for the industry. For starters, venture-capital funding for U.S. life sciences companies saw an 86 percent increase for the year, ending in September, to the tune of $15.8 billion. And, life sciences lab space under construction in the sector’s five largest U.S. markets expanded to 6 million square feet last year, a 101 percent increase.

In its report, CBRE said it focused on the human life sciences industry, which consists of manufacturing, testing and research-and-development work in biotechnology, pharmaceuticals, and medical devices. The top established life sciences hubs were analyzed and ranked according to four main criteria for each market: the number of scientists in key industry categories, the industry funding for local life sciences companies, size and long-term growth of the life sciences workforce, and inventory of industry lab space.

Between 2014-2017, Dallas-Fort Worth was the seventh fastest growing life sciences market in the nation. With two biological science higher education programs ranked in the top 100, according to U.S. News & World Report, Dallas-Fort Worth is now ranked 11th for producing new life sciences talent.

There are also three hospitals in North Texas that are ranked in the top 100, the report said, that bolsters the relationship between medical research institutions and life sciences innovation.

“The DFW area is an attractive market for companies in the life sciences industry,” CBRE Vice Chairman Jeff Ellerman said in a statement. “There is an enormous amount of high-tech talent in the area, which helps support the cross pollination between tech and life sciences.”

That makes North Texas attractive for companies.

“When you combine the growing market with available talent, it becomes a no-brainer for large companies in the pharmaceutical and medical technology sectors to choose North Texas for their headquarters,” Ellerman said.

 

Source: Dallas Innovates