Report: MOB Sector Boosted By Demand And Capital

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The medical office sector was firing on all cylinders before the arrival of COVID-19, and it appears to be well-positioned for a robust rebound post-pandemic, according to a special report by Marcus & Millichap.

In the third quarter forecast titled Beyond the Health Crisis: National Medical Office Outlook, the company notes that the adaptation of patient care and the ongoing rise in health-care needs will buoy demand for medical office buildings despite the disruption brought on by the coronavirus.

“The medical office sector is being tested as operators navigate new challenges created by COVID-19. Medical office was once perceived to be a more resil­ient asset class during a downturn, but the unique uphill battle faced by health-care providers due to the pandemic has choked revenue streams and considerably shrunk margins,” according to the Marcus & Millichap report.

The national vacancy rate rose to 8.9 percent, marking an increase of 40 basis points from the second quarter of 2019. Project abandonment and delays caused construction activity to drop 1 million square feet year-over-year. Additional projects will be postponed or canceled in the upcoming months; however, this will help stave off any threats of overdevelopment in the sector.

Other fundamentals, such as rental rate trends, serve as indicators of strong performance ahead. Most REITs reported a solid level of rent collections even though many tenants pursued deferrals and rent relief. Additionally, rent growth continued its pre-pandemic upswing, climbing to an average of $25.22 per square foot.

A New Age In Health Care

Well in advance of the appearance of the coronavirus, the U.S. health-care industry had begun to decentralize, providing more medical care in outpatient facilities instead of hospitals.

“Excluding some major surgeries, off-campus properties now offer the highest quality of care and complex procedures, driven by the need to provide equal levels of service across a metro,” according to the Marcus & Millichap report. “New hospital and expansion projects continue to target suburban areas as a demographic shift has caught the attention of health systems, placing more modern facilities and specialized care closer to patients’ homes. As these medical districts expand, the need for nearby outpatient clinics and supportive services generates demand for medical office space.”

Telehealth, via phone or online video, increased dramatically as a result of social distancing, and while experts expect the use of virtual care options to continue to rise in the post-pandemic environment, they do not expect it to result in a reduction in the need for medical office buildings. According to the report, the need for certain in-person visits will remain, as will the need for labs and imaging, all of which will translate into continued demand for medical office accommodations.

Finally, the coronavirus has not changed the fact that the considerable Baby Boomer population continues to age, and it’s doing so in an era when medical technology and advancements are supporting longer lifespans. As Marcus & Millichap notes in the report, the population of citizens aged 65 and older will expand by 30 percent over the next 10 years.

And with age comes more visits to the physician’s office. Individuals in the 55-64 age range make an average of 4 physician visits annually, but the number of yearly visits rises to 5.9 for those in the 65-74 age range and jumps to 7.6 for those 75 and older.

“Despite the short-term costs, the health-care industry will be one of the quickest to bounce back from the pandemic since the care needs of a growing and aging population continue to increase,” Marcus & Millichap asserts in the report. “Medical services are returning as states move through reopening phases, and pent-up demand from postponed procedures and office visits provide a positive outlook.”

Read the full report on Marcus & Millichap’s website.

 

Source: Commercial Property Executive

Acceleration Of Telehealth Adoption Set To Reshape Healthcare Real Estate

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The next time you visit your physician, your appointment may very well be virtual from the comfort of your own home.

Telehealth, or telemedicine, was an emerging part of healthcare delivery long before COVID-19. Now, the pandemic has catapulted the concept into national awareness. Changes in insurance reimbursement have expanded the availability of telehealth, with new implications for healthcare real estate occupiers, owners and investors.

What does “telehealth” mean, exactly? It encompasses electronic, interactive services ranging from a simple phone call or email with a clinician to a virtual exam with a caregiver for the purpose of diagnosis, intervention or ongoing care management. It’s enabled by such platforms as Doxy.me and NextGen Healthcare that make it easy to accept payments or insurance information in conjunction with an appointment.

Despite the convenience and effectiveness of telehealth, and the growth of secure telehealth platforms over the past decades, its pre-pandemic use was limited because of insurer reimbursement restrictions, Health Insurance Portability and Accountability Act (HIPAA) patient data privacy requirements, and practitioner concerns about malpractice.

However, when states began to enact stay-at-home orders in early March in response to the pandemic, telehealth gained new attention among policymakers as a solution to providing healthcare without further jeopardizing patient health. As a result, provisions in the Coronavirus Aid, Relief and Economic Security (CARES) Act lifted restrictions on where, how and with whom Medicare patients can access virtual care.

For the first time ever, there may be a critical mass of patients and practitioners alike able to tap the benefits of telehealth, mostly substituting onsite appointments with simple e-visits. Now, Medicare patients can access telehealth services from their own homes and healthcare providers can deliver service from any healthcare facility. Telehealth visits can take place via any phone with audio/video capabilities, using common consumer platforms such as FaceTime and Skype. Also important, first-time patient visits via telehealth are now eligible for Medicare coverage, too. Any healthcare professionals eligible to bill Medicare for their services can now bill Medicare for telehealth services, too.

From Stopgap Service To Structural Change

The acceleration of telehealth adoption may have been forced out of necessity during the pandemic. However, its use will likely continue to grow even after the pandemic fades.

In the post-pandemic era, the ease, efficiency and convenience of telehealth care will increase patient commitment and retention, and potentially lead to more in-person appointments for follow-up care. Telehealth also improves compliance with prescribed treatment plans, including follow-through on required appointments.

Also critical, telehealth enables patients in even the most remote and underserved locations to access care. And, it may prove to be especially well-suited for remote management of long-term chronic conditions such as allergies, diabetes and multiple sclerosis, and for monitoring such treatments as infusions and pacemakers.

As medical technology continues to advance at a rapid pace, an increasingly sophisticated suite of implantable and wearable devices, or even robotic telemedicine carts, will enhance home monitoring and management capabilities. Healthcare providers who implement this device-enabled “hospital at home” concept can help patients maintain their long-term health safely.

Telehealth’s Impact On Healthcare Real Estate

Clearly, telehealth usage has surged in 2020 to occupy a much more prominent place within the care spectrum than ever before. However, it’s important to keep the trend in perspective. According to FAIR Health’s private healthcare insurance claims data, only 0.17 percent of all services, or less than one-fifth of 1 percent, were provided via telehealth in the first quarter of 2019. In 2020, first quarter usage jumped to about 7.5 percent of services. April and May usage—data is not yet available—is forecasted to be higher than previous months. Thus, while telehealth usage has grown dramatically, its role in the healthcare service delivery spectrum continues to be secondary.

Yet, the long term may reveal a different story. As healthcare providers look to drive down costs while boosting reimbursements, telehealth’s role will likely become more prominent. As a result, many healthcare providers will need to reconfigure their facilities to provide HIPAA-compliant, technology-enabled spaces for the provision of telehealth and remote health monitoring services.

In light of the telehealth trend, the following are four steps healthcare occupiers, owners and investors should consider for the future of their facilities:

Develop telehealth care provider suites. Although patients will be able to participate in telehealth calls and remote health monitoring at home, practitioners will still need space for calls or electronic communications, as well as for remote monitoring and diagnostic equipment. Medical office buildings could provide suites for technicians and nurses to virtually manage intensive care, emergency and home care patients, for example. These spaces would require Internet redundancy, appropriate lighting, screens and acoustics, and assured patient-caregiver privacy for HIPAA regulatory compliance.

Reconfigure public spaces. Even as healthcare providers transition more basic care and monitoring services to online delivery, patients will still need office visits for advanced treatments, extensive physical evaluations and for use of advanced diagnostic equipment. However, the pandemic already has led healthcare providers to rethink their waiting room management to allow for social distancing. For instance, some providers ask patients to wait in their cars rather than in the waiting room and use text messaging to alert patients of their appointments.

With widespread adoption of digital patient registration and text messaging, less waiting room space will be needed even after the pandemic. An onsite kiosk, for example, could be used by patients to register upon entry, and possibly could support healthcare service delivery in other ways.

Reconfigure and repurpose healthcare delivery spaces. Many facilities will require interior reconfigurations, renovations and build-outs to support the transition to telehealth services. The adoption of telehealth care delivery will likely reduce the number of physical exam rooms needed in a healthcare facility and will free up square footage for other purposes. With less space required for physical exams, facilities can prioritize space for high-value imaging, diagnostics, injectables, wound care, advanced and acute treatments, obstetrics and laboratory services.

Pursuing The Possibilities Of Telehealth

As pandemic-related financial losses continue to mount across the healthcare sector, telehealth offers the potential to provide efficient, effective patient care while maximizing productivity-per-square-foot of healthcare real estate. For some healthcare providers, telehealth adoption could dramatically reduce the need for office space or increase the need for different kinds of spaces, depending on the services provided. Whatever the situation, healthcare providers, owners and investors have always been adept at adaptation—and many are already positioned to pursue the possibilities of telehealth.

 

Source: GlobeSt

Medical Office Building Sales Fell Nearly 50 Percent In Q2, But The Sector’s Outlook Is Strong

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The volume of MOB investment sales transactions in the second quarter of 2020 totaled around $2.2 billion, a 43 percent decrease compared to a year ago. In the first quarter of 2020, MOB investment sales volume reached $3.7 billion, according to data firm Real Capital Analytics (RCA).

The CoStar Group, another provider of commercial real estate data, pegs MOB investment sales volume at around $2.1 billion in the second quarter, a drop of 54 percent from $4.7 billion from a year ago.

“The volume of sales has absolutely hit pause, it hit the brakes really hard in the second quarter. You saw a significant drop in sales volume,” says Keith Pierce, research manager for Southeastern region with real estate services firm Transwestern. “The price per square foot did not really shift that much for those sales that did close. But by and large, just everybody froze in late March and largely stayed frozen until sometime in June.”

Average cap rates on transactions involving MOB assets remained at 6.6 percent at the end of the second quarter, flat with the figure from a year ago and the first quarter of 2020, according to RCA. CoStar pegs average MOB cap rates at 6.7 percent, also registering no change from the previous quarter.

“I anticipate seeing somewhat of a flattening,” says Russell Brenner, president of the medical office and life sciences division with real estate investment firm CA. “Once the market truly opens up again and lenders, which have been very selective in where they lend, come back into the market in droves and in a more significant way, I think you may well see cap rates continue to fall. But for probably the next two three quarters, I think it will be a largely flattening of cap rates.”

Earlier during the pandemic, many Americans largely postponed elective procedures, which put a dent on revenues for medical office tenants. But in states where those facilities are reopening, industry sources are reporting pent-up demand.

“We saw very few delinquencies, perhaps a handful of rent deferral requests, but by and large, the healthcare medical office tenancy as a whole stood up very well,” says Brenner. “Certainly now that elective procedures are back on in most parts of the country, MOBs are poised to bounce back and will continue to be a stable and reliable asset class.”

“Medical practices are running at 90 to 95 percent of pre-pandemic levels,” says Steve Hall, senior managing director for healthcare advisory services at Transwestern, who expects this level of demand to continue through the end of the year.

“Many of the company’s tenants are back to 80 percent of pre-pandemic levels of procedures and services,” says Jon Boley, senior vice president of acquisitions and development for HSA PrimeCare, a firm that develops, leases and manages medical facilities.

“The reason these businesses are not back to 100 percent is because they are having to do above-standard cleaning in order to disinfect surgery centers throughout the day,” Hall notes. “A factor that will shore up MOB assets in the future is the dearth of new construction happening right now. During a pandemic, a lot of people aren’t pulling the trigger on a brand new construction. The lack of construction going on right now I think is really going to keep the market strong since there is not going to be oversupply.”

 

Source: HREI