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Health-Care Real Estate Deals Hit Record $26 Billion

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Health-care real estate continues to thrive, and investors can’t get enough of the sector, according to JLL’s Valuation Advisory Group’s inaugural Healthcare Investor Survey and Trends Outlook.

Transactions in the sector climbed to $26 billion in 2022, marking an annual record.

In the first report of its kind for JLL, the commercial real estate services firm queried approximately 130 influential leaders in the health-care industry. Participants included private capital providers, which accounted for the highest representation at 33 percent, followed by developers and institutional investment managers, which comprised a respective 23 percent and 19 percent of respondents. The group helped provide a crystal-clear picture of health-care real estate’s success in 2022 and its prospects in 2023.

According to the JLL report, medical office buildings proved a powerful magnet for investors in 2022, with the property type accounting for 58 percent of overall health-care investment activity. Part of the high volume of trading in the sub-sector can be attributed to the $9.4 billion merger between Healthcare Realty Trust and Healthcare Trust of America, which involved a portfolio of approximately 400 MOBs. Had the joining of the two companies not occurred, the numbers would likely look a bit different, as transaction activity declined significantly in the fourth quarter of 2022 due to pricing uncertainty amid rising interest rates and recession fears.

Ambulatory surgical centers followed MOBs in popularity among investors in 2022. Trades involving the property type went on the upswing, jumping 7 percent year-over-year to 27 percent of the total health-care transactions. The investment community’s keen interest in MOBs and ASCs can be linked to an ongoing transformation that has buoyed demand in the outpatient care arena.

“Advances in technology, changes in reimbursement and consumer preference and convenience have shifted sites of care from inpatient to outpatient,” according to the JLL report.

Fundamentally Sound

The rising demand for MOBs along with a low level of new deliveries are serving as a foundation for strong fundamentals in the sector. At the close of 2022, MOBs recorded an occupancy level of 92.3 percent and continued to experience consistent rent growth. MOBs are outperforming the traditional office sector, where the average occupancy level is a notable 11.4 percent lower.

Unlike traditional office buildings, MOBs are not contending with the leasing challenges that accompany the spread of the remote-work trend. And the very nature of MOB space lends itself to longer tenant commitments.

“Because of the high cost to build out a medical office space and proximity to patients, medical office tenants tend to remain in the same space for longer, providing stable occupancy,” as noted in the JLL report.

No Hindrance To Sunny Forecast

Although MOBs are the star of health-care real estate in investors’ eyes, the sector is not impervious to challenges. JLL queried survey respondents regarding their apprehensions about potential obstacles in the health-care investment sector over the next 12 months, and 66 percent pointed to rising interest rates and capital markets as the leading concern. Development costs, garnering the concern of 13 percent of respondents, ranked as the second-most worrisome issue.

Although the investment community is operating with the knowledge that looming obstacles could impact their activity, 66 percent of survey respondents reported that MOBs will remain the most desirable opportunity in health-care real estate in 2023. The immense appeal of MOBs among investors is here to stay for the long term, even amid economic uncertainties.

As noted in the JLL report, “Strong net operating income growth at 2.7 percent in the fourth quarter of 2022, despite high expenses and acceptance of 3 percent escalations, make MOBs a resilient asset class in a cloudy economic climate.”

The future looks bright for health-care real estate investment overall. Thirty percent of survey participants indicated that they anticipate an increase in transaction activity and market valuations over the next 12 months.

 

Source: CPE

MOBs Continue To See Demand As They Adapt To Market Changes

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The medical office building (MOB) sector continues to be favored by investors as a stable asset despite real estate challenges and disruptions brought on by the pandemic, according to JLL’s (Chicago) new “Healthcare and Medical Office Perspective.”

The recent report explores key themes impacting U.S. healthcare systems and medical office owners, including labor challenges, payor and reimbursement pressures, elevated costs, and industry disruptions

“Facilities offer both risks and opportunities to healthcare providers, and, despite the challenges, the critical nature of healthcare and large tailwinds from a growing and aging population continue to make healthcare real estate one of the most stable asset classes for investors,” Jay Johnson, National Practice Leader, Healthcare Markets, JLL, said in a press release.

Specifically, medical office occupancy is relatively stronger than the commercial office sector and was significantly less disrupted by pandemic. Medical office asking rents averaged 2 percent growth year over year for the past five years and reached an average $23 per square foot triple net by mid-year 2022, reports JLL.

Medical office sales reached $9.2 billion in the first half of 2022 after a record performance and investor interest in 2021. JLL anticipates 2022 to close at another record year. The strong demand for healthcare services and the continued shift to outpatient care is expected to assure healthy investor appetite for MOBs.

 

Source: healthcare design

Supurva Healthcare Group Targets Medical Office Buildings To Launch Its Real Estate Portfolio

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Booming is the only word to describe demand for medical office buildings,

With the nation slowly recovering from the COVID-19 pandemic, investors have concluded that the number one real estate investment opportunity today is MOBs. The formerly niche product has moved front and center as multifamily yields have compressed in recent years and the current retail and broader office investment landscapes have seen a large-scale disruption related to the ongoing COVID-19 issue.

The MOB asset class has exhibited consistent growth in recent years, buoyed by both increased demand for outpatient services and strong historical performance. MOBs are a significant subset of the greater office asset class and are growing in stature among experienced real estate investors. As the name suggests, MOBs are developed specifically for tenants in the medical field to consult with patients and perform various surgical procedures.

Supurva’s decision to invest in MOBs is coming at an opportunistic time as it seeks to create a portfolio of MOBs. It is the Company’s firm belief that that despite the economic turmoil caused by COVID-19 and the growth of telehealth, the MOB market has and will remain resilient. MOBs will sustain their power through the coming decades as the U.S. population ages, consumes more healthcare services, and receives more of those health care services at outpatient settings.

With advances in medical technologies, procedures that once could only be performed at hospitals or ambulatory care facilities can now be performed at the physician’s office, further fueling demand for MOBs. Investors are beginning to realize that MOBs represent an alternative asset class that is rapidly increasing in popularity.

“The number one takeaway from a recent real estate investment symposium was simple and straightforward,” reported Mr. Murphy, Supurva’s chief executive officer. “Investors should liquidate their other real estate holdings and put their money into MOBs. For real estate investors seeking a steady return on their investment the only safe, secure, and reliable real estate investment opportunity today is clearly MOBs. Supurva will be working with real estate professionals throughout the country to identify undervalued and underutilized medical office buildings.”

Jones Lang Lasalle, a leading real estate investment company reported in a February 2021 article that ​despite the economic downturn of 2020, there has been no downturn in demand for MOBs. Despite the financing obstacles witnessed during the pandemic, sales of MOBs exceeded $13 billion in 2020, which was on par with pre-pandemic sales levels in both 2018 and 2019. While other real estate investments declined by an average of 33%, MOBs sales remained strong, further demonstrating that MOBs can withstand pandemic-related operational challenges.

JLL went on to report that medical offices remain a favored sector for real estate investment as evidenced by new entrants into the space, including institutional investors, private equity funds, and individual investors. The compelling investment thesis for medical office space has generated a significant supply of investment capital (both debt and equity) waiting to be deployed into this space, providing a very liquid and competitive market for sellers.

The demand-driven increase in healthcare services from a growing and aging population (10,000 people per day turning 65) has pushed hospitals and health systems to create lower cost outpatient care alternatives.

JLL is not he only real estate investment company focusing on MOBs. According to the CBRE Group, compared to other asset classes and the overarching office class specifically, MOBs generally exhibit uniquely steady long-term occupancy rates. CBRE data suggests that medical office vacancy rates have consistently been lower than the total office sector, with vacancy rates falling from 11.1% in 2010 to 8.4% by mid-year 2018. According to the CBRE 2019 Healthcare Real Estate Investor & Developer Survey Results, 99% of CRE firms stated that between 2018 and 2019 the occupancy of their medical office portfolios either remained stable or increased from the year prior.

The strength of MOB occupancy rates is partly due to the length of leases that medical tenants typically sign. Because the physical features of MOBs are very specific-offices, medical treatment rooms, surgical rooms, and waiting rooms-the build-out is often more costly than that of a traditional office tenant, and medical tenants typically sign longer leases for this reason. Tenants also tend to stay put longer given the high switching costs associated with relocating. In addition to stable occupancy rates,

MOBs have also exhibited consistent rent growth over the past ten years, which can be seen in the below graph. In 2018, the average asking rental price increased to almost $23/SF, a 1.4% increase year-to-year. Average asking rent for U.S. MOBs remained at a near-record level in Q2 2019 according to CBRE.

“MOBs represent the Company’s future and MOBs represent the RX for success,” Mr. Murphy commented.

 

Source: yahoo! finance