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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

Health-Centered Communities May Start To Resonate In Coronavirus Era

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Health-centered communities, neighborhoods where millennials, baby boomers, technological advances, and new health care delivery models all converge, can be the blueprint of urban and suburban planning even in the age of COVID-19 and especially post-COVID-19, says Dennis Frenchman, Director of the MIT Center for Real Estate and the Class of 1922 Professor of Urban Design and Planning.

“Baby boomers are looking for convenient, affordable, aging-in-place health care options. Millennials, meanwhile, are pursuing physical environments that support their well-being and community-centric values,” Frenchman tells GlobeSt.com. “Our goal is to provide a blueprint for how to navigate these complex and profound demographic and cultural shifts taking shape throughout our society.”

Frenchman and his colleague, Stanley Shaw, plan on offering the course, Developing Health-Centered Communities: The Next Revolution.” in Real Estate in the Fall.

Baby boomers are aging and healthcare is foremost on their mind while most millennials are trying to lead healthy lifestyles by eating healthy foods and leading active social lives.

“These two generations are colliding in terms of health and wellness,” observes Frenchman.

Another plus to these communities for baby boomers how older buildings relate to their health.

“Living and working in an older, poorly ventilated building can negatively contribute to your health and longevity,” explains Frenchman. “If you have better quality air, sunlight and an overall healthy environment, landlords and developers can get premium rents.”

For these and other reasons, millennials are now suggesting their parents move to a health-centered community where parents can age in place instead of assisted-living facilities. As a result, the younger generation has more contact with the older generation, Frenchman says.

These communities tend to feature health centers in addition to the ubiquitous clubhouse. The developers also encourage walking around the community instead of driving everywhere. Instead of flattening hills, developers keep them intact to promote more exercise and movements.

“Health-centered communities also feature bike trails, social opportunities, horse stables and wellness programs,” says Frenchman. “Developers who offer these products will garner a lot of interest from all age groups.”

COVID-19

People are naturally social animals and the coronavirus has thrown a wrench in attending or hosting social events. In this age of social distancing however, healthy-centered communities can easily adapt to not interacting or engaging at any given time.

“Technology will solve some of the need but not necessarily all. However, it can work for a period of time,” explains Frenchman. “With digital technology, and in a health-centered community, patients are monitored remotely in their own environment. They can actually monitor their own oxygen, pollutants, carbon monoxide, etc. These tests are important for many reasons but it also shows you the physiological response of people as they live on their own environment.”

Frenchman believes these health-centered communities are simply a better way of living.

“There are less ER visits and less hospital stays,” says Frenchman. “Encouraging people to use their body and minds and overall just take care of themselves in this age of COVID-19 is always a good thing and it can also result in profits.”

 

Source: GlobeSt.