Examining The U.S. Medical Office Sector: Has It Recoverd In Second Quarter 2019?
Following a sharp 33% drop in growth during the first three months of 2019, the US medical office sector recovered in the second quarter, reducing activity to a 5% year-over-year decline, according to a Real Capital Analytics report.
However, this improvement was largely impacted by a particular deal in June, in which Welltower purchased a portfolio of 50 medical office buildings from CNL Healthcare for more than $1 billion. Without this substantial transaction, second quarter activity would be down 36% year-over-year, RCA says.
This significant deal offers misleading headline figures, as the individual asset sale volume still fell 32% year-over-year in the second quarter. Though the steady decrease in numbers does not necessarily validate the sector’s future.
Considering the majority of medical offices are situated in suburban areas, the asset pricing often relates to suburban offices overall.
The average cap rate for suburban offices is 7%, while medical office cap rates in the second quarter of 2019 remained lower, averaging 6.6%. However, medical office cap rates were much more similar to suburban asset cap rates, earlier in the cycle.
Source: GlobeSt
