Getting In The Heads Of Medical Office Building Tenants
Overall, MOBs are performing well, and are set to continue to do so. As long as the broker knows what’s hot and what’s not, we found out, the space is rich with opportunity.
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Survey Finds Location And Wait Time Top Factors In Patient Experience
Proximity to a healthcare facility may be a bigger factor than ever in where patients choose to seek care, according to a recent survey by JLL, a real estate and investment management firm.
In the poll, 83 percent of patients stated they would prefer to be near their care rather than driving farther to a new or renovated facility. Only 36 percent of survey participants said they checked reviews prior to an appointment.
The firm also looked at what patients notice most during a visit, with cleanliness, safety, accessible parking, and staffing as top factors that patients noted as contributing to a positive experience on their last visits. Those unhappy with their last experience pointed to lengthy wait times (34 percent) and inadequate staffing (28 percent) as the biggest issues, while unsafe and dirty/unsanitary conditions were low on patients’ issues with a poor experience.
“It’s clear that facilities need to focus on cleanliness and safety while also enhancing the patient experience through proper staffing to improve efficiency,” Richard Taylor, divisional president, JLL Healthcare Solutions, a division of JLL, said in a release on the report. “If a patient is frustrated with the process of gaining access to care, they are unlikely to even notice the other qualities of the facility.”
Source: healthcare design
What Is Making The MOB Segment So Healthy?
Since 2012, annual revenues from the pharmaceutical industry have increased from nearly $200 billion to almost $300 billion in 2018. In the same period, single-tenant medical office transactions jumped from almost $1.5 billion in 2012 to $2.5 billion last year.
What is causing the significant increase in single-tenant medical office transactions along with the robust health-care market?
The simple answer is an aging population. There is no question that America is getting older. According to the United States Census Bureau, the number of Americans 65 years and older is expected to double over the next three decades. An aging population requires more drugs, more health-care professionals and more space to deliver medical services. For investors in net lease properties, the medical office sector can provide a strong investment opportunity to ride this seemingly unstoppable trend.
First, the space is more accessible to a wider group of investors with an average transaction size of nearly $10 million in 2018 vs. over $20 million for the rest of the single-tenant office sector.
Secondly, medical office is commanding higher per-square-foot valuations than the net lease office sector overall, with buyers paying a 7 percent premium per square foot over non-medical assets. This reflects the robust demand and healthy market fundamentals, as investors can take comfort in owning a solidly performing medical office property that commands a strong valuation.
In an investor survey recently conducted by JLL, respondents’ interest in office assets leased to health-care-related tenants outpaced that of technology, business services, government and financial services. Investors who are targeting the health-care space in 2019 indicated they are allocating on average 20 percent of their capital towards medical office assets.
Additionally, apart from industrial assets, investors indicated that the health-care sector was the most likely to exhibit a decrease in cap rates in the remainder of the year. This, along with the other factors previously mentioned, has attracted a diversified and evenly distributed buyer population. Institutional and private investors as well as REITs have been putting money into this property type, which indicates the depth of investor interest across the spectrum of buyers. Broad investor interest and increased demand is expected to continue to put owners in a strong position to sell their investments at attractive valuations in the future.
Finally, the asset class on average commands lower cap rates than the rest of the single-tenant office space, due to the mission criticality of the real estate. Its cap rate is reflective of its dependable stream of income. On average, medical cap rates are 30 basis points lower than those in the office sector overall.
As net lease investors navigate the uncertainty of the retail sector, the medical office space appears poised to offer an alternative, with strong, dependable returns that are more difficult to disrupt with technology and the internet. As long-term trends in health care continue to point toward longer lifespans and increased care, medical office space will remain critical and demand will increase, providing opportunities for investors to capitalize on this unstoppable force: growing old.
Source: Commercial Property Executive
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