Dallas Is Nation’s Second Most Active Medical Office Building Construction Market

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Dallas-Fort Worth has the second-most medical office building construction nationwide, accounting for nearly 1.5 million square feet and behind only New York City.

Medical office buildings are getting larger, farther away from hospital campuses, and remain profitable and well-occupied in the region, according to Revista data shared by Mike Hargrave at the North Texas Hospital, Outpatient Facilities, and Medical Office Buildings Summit. Private equity is an growing influence in health care transactions, and Dallas leads major Texas markets in average rent and rent growth for medical office buildings as well.

Dallas has 14 projects under construction in the medical office building space valued at $503 million and is second only to New York’s more than 2 million square feet worth over $1.3 billion. Houston is a close third, with 15 projects accounting for 1.2 million square feet and $344 million.

Since the 1980s, medical office buildings have moved from around 1.5 miles from the nearest hospital to often nearing three miles today. Building peaked around 2009 with nearly 35 million square feet built that year to around 21 million this year.

Meanwhile, individual projects are getting bigger. Most projects were less than 40,000 square feet prior to 2005, but since 2009, the average square foot for medical office building are closer to 60,000 square feet.

Healthcare practices are growing as well. Between 1981 and 2007, most practices were less than 8,000 square feet, but today the median size is 12,000 square feet.

Occupancy of investor owned outpatient buildings has remained fairly consistent since 2009, hovering between 90 and 92 percent. Relative to Austin, San Antonio, and Houston, Dallas has nearly as much as Houston in terms of inventory with 34.2 million square feet, but is on top of the heap in occupancy at 89.8 percent. Its $22.53 per square foot is also tops in Texas, as well as its year over year rent growth at 2.9 percent.

Nationwide for the last four years, healthcare real estate transactions remain strong, hovering between $15 and $20 billion for combined hospital and medical office building deals. Private equity’s influence on those deals is growing, as 2014 saw 27 percent of transactions grow to 61 percent by 2018. REIT has seen a sharp decline, from 53 percent of deals in 2014 to just 16 percent last year.

Across the US, there are 439 medical office buildings and 491 general hospitals under construction, accounting for 108.3 million square feet and $67.2 billion. The median size of a medical office building is 50,000 square feet and median value is $17 million. Median hospital size is 95,5000 square feet worth $50 million.

 

Source: D CEO Healthcare

Adding Healthcare To Retail Areas Is A Big Trend. But What About Adding Retail To Healthcare?

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The “retailization” of healthcare is a well-documented, recent and successful trend in the country’s medical delivery model.

But what about the “healthcare-ization” of retail?

Northwestern Memorial HealthCare, a 10-hospital system in Greater Chicago, has flipped the script by strategically incorporating innovative retail and food outlets in its healthcare facilities – and it’s working. Gina Weldy, the system’s senior VP, administration, discussed the strategy during a presentation at the International Council of Shopping Centers (ICSC) RECon global convention held May 19-22 at the Las Vegas Convention Center.

“We often go into retail settings as a healthcare provider, but today I’m going to spend some time talking about how we actually deploy retail into our hospital pavilions and our medical office buildings,” Ms. Weldy told the capacity crowd during a presentation titled “How to Add Mixed-Use to a Healthcare Facility” during the Health & Wellness portion of the RECon event. “We have hospitals in the suburban markets and our core academic medical center is a block off Michigan Avenue (home to the well-known shopping district known as the Magnificent Mile), So, we by nature, have a unique retail opportunity, and I think we’ve finally learned how to leverage that.”

Ms. Weldy wasn’t talking about beefing up old-school hospital cafeterias or tired gift shops stocked only with balloons, flowers, cards and stuffed animals. No, she was talking about Northwestern Memorial’s success with bringing in hip, new and attractive restaurant operators and retailers – 36 different lessees in all – into its hospitals and outpatient pavilion settings, with a big focus on Chicago-area food and beverage operations at its massive, main hospital campus just a block off Michigan Avenue near the Streeterville neighborhood just north of the Chicago Loop.

Ever since the health system started working with a retail consultant in recent years to help it determine a retail strategy and to advise it in how to work with retailers and restaurant operators, sales have tripled in its retail spaces.

 

Source: HREI

Healthcare Is Entering A New Era Of Medical Office Development

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Meridian CEO John Pollock uses three words to describe the biggest trend in healthcare real estate at the moment: outpatient, outpatient, outpatient.

“As healthcare enters a new era, companies providing more outpatient services are on an upswing,” Pollock said. “We are in an era of tremendous growth in outpatient services,” Pollock wrote in an email to Bisnow. “In fact, we are so sure that outpatient services is where the industry is headed that this sector is nearly our singular focus at Meridian. I believe that as healthcare systems provide more care in a lower acuity setting, they will be able to provide a better experience for patients and at a lower price.”

Healthcare is undergoing a tremendous transformation. Healthcare is adjusting, evolving and growing rapidly as baby boomers continue to retire, millennials and Generation Z mature, and technology continues to shape the healthcare space.

“Now more than ever, bigger players and more money — especially from institutional investors — are entering the industry, CBRE First Vice President Angie Weber said. “These large providers have really taken over and the independent physician has become a thing of the past,”

Weber and Pollock are speaking at Bisnow’s National Healthcare West event June 20. Because of the growing population and the fact that most everyone at one time or another gets sick, healthcare is seen as a safe and resilient investment.

“It’s very safe and strong,” Weber said. “But it’s very expensive. The cost of managing staff and patients, tenant improvements and construction are very high.”

Outpatient demand is driving the development of medical office buildings greater than 150K SF, according to a JLL report released in May.

“No area of growth in healthcare is higher than outpatient services,” Pollock said.

There are currently 44 medical office developments larger than 150K SF under construction in the U.S., according to the report. The projects, estimated at $5.3B worth of investment, total nearly 11M SF and represent 22% of all medical office projects underway, the report states. Of the 44 projects, five are 450K SF or more, one is in the 350K SF to 449K SF range, eight are 250K SF to 349K SF, nine are 200K SF to 349K SF and 21 developments are 150K SF to 199K SF.

“This new trend is a function of the well-recognized growth in outpatient care with its focus on the patient experience and physician convenience with critical services and specialties housed under one roof, with the added goal of accountable care in a lower cost setting,” the report states. “The timing couldn’t be better given the surge in capital seeking investment opportunities in healthcare given the quality of tenancy and durability of medical office properties.”

Weber said the outpatient trend is being driven by a combination of demands from patients and medical providers. Many people, especially millennials, don’t like visiting a hospital for treatment.   Medical providers also find that it costs more to do certain medical procedures in a hospital than an outpatient setting.

“Along with preventive care options, medical providers are opening more specialized healthcare facilities, such as those that offer treatment for depression or post traumatic stress disorder and behavioral and mental health facilities,” Weber said.  “We’re going to see more of that,” she said. “I think you’re going to see these outpatient clinics in all shapes and sizes.”

 

Source: Bisnow