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Medical Office Buildings Continue To Stoke Net Lease Investors’ Interest

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Medical office buildings have emerged as a favorite among investors interested in single-tenant net lease opportunities, according to a new report from Colliers.

Overall, the STNL space posted strong performance in the first half of 2022 and hit a historic high of $40.1 billion in investment sales, according Colliers. However, volume in Q2 fell 35% over Q1 numbers and 17% year-over-year.

Despite that, the medical sub-sector remains strong. Colliers’ Jay Patel cites as one reason “predictable” cash flows and the price range on assets that appeals to both institutional and private investors alike. In addition, there’s COVID-19:

“Pandemic investors flocked to the medical office sector for its perception as a safe, interest- resistant and now pandemic-resistant asset,” Patel says. “During the pandemic, investors were eager to snatch up anything medical-related regardless of lease term, credit, and location.”

Construction pipeline delays have also contributed to an ongoing chasm between supply and demand, which has compressed cap rates.

“Net lease has also risen due to the ongoing supply chain disruptions, slowing the delivery of new product,” Patel says. “This has pushed more healthcare tenants to consider alternative space solutions like the adaptive reuse of traditional office or retail properties.”

Of course, the capital markets have changed this year — and medical office isn’t immune to those shifts. Patel notes that “while capital is still being deployed, investors are no longer scooping up just anything that’s healthcare assets.”

“Buyers are now taking a closer look at credit, lease terms and location. With inflation looming in everyone’s mind, assets that have strong rent increases are experiencing stronger activity,” Patel says. “To bridge the gap for investors that are feeling the burden of this rising interest rate environment, many developers and sellers are starting to shift pricing, which is creeping back toward pre-pandemic standards.

Colliers Julie A. Johnson predicts the asset class will continue to be strong in the near future despite rising capital costs.

“The past several years have been banner years for investors with historically low cap rates and many more buyers in the market than sellers,” Johnson told GlobeSt.com in an earlier interview. But “medical office buildings will continue to be strong with not only the increase of the senior population but also the population increase in many markets, specifically the Sun Belt cities.”

Patel says good lease terms and credit will be critical moving forward into 2023. While previously just one of those elements was needed to sell a property.

“Today’s market conditions necessitate all three factors carrying equal importance when appealing to investors,” Patel says.

 

Source: GlobeSt.

Study: North Texas Hospitals Have a $38.4 Billion Economic Impact

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Healthcare continues to be one of North Texas’ most important economic drivers, with an increase of $7.7 billion in economic impact since 2017.

A new study commissioned by the Dallas-Fort Worth Hospital Council shows that healthcare makes a $38.4 billion economic impact on the region.

“We were impressed by the significant increase and impact for North Texas over the past five years,” said Stephen Love, president, and CEO of DFWHC via release. “Such a positive economic impact is extraordinary, especially considering the challenges facing hospitals over the past two years during the COVID-19 pandemic.”

The study, which DFWBGH’s Board of Trustees commissioned, highlights statistics provided by the 90 DFWHC hospital members. The institutions provided $26.1 billion in labor income, $5.9 billion in retail sales, and $6.4 billion in federal, state, and local taxes. The members also represented 372,988 jobs in 2022, an increase from 295,138 in 2017.

The numbers from this region reflect a recent U.S. Bureau of Labor Statistics report from 2020, saying that the healthcare sector will add 2.6 million jobs over the next decade, with nurse practitioners growing incredibly quickly, at 45.7 percent. As the Baby Boomer population ages and has increased chronic conditions, healthcare will be more in-demand than ever, and healthcare is expected to grow quicker than any other industry.

The economic impact was measured by calculating the business transactions of all industries within a hospital’s service area, DFWHC’s region, and the state. It also measured the hospital and employee spending while calculating the number of jobs and income created through healthcare positions.

Despite the economic impact, many hospitals are struggling to stay in the black. Because reimbursement rates are negotiated yearly, it is more difficult for healthcare entities to increase prices if the cost of supplies and labor fluctuates, as they have in the last year. Bloomberg reported in September that 53 percent of all hospitals to lose money in 2022. Delayed care due to the pandemic has resulted in sicker patients, labor shortages have forced providers to increase pay to attract talent, and inflation has raised input costs.

Consulting firm Kaufman Hall and the American Hospital Association research showed that in 2019 and 2021, around 35 percent of hospitals experienced losses, but in 2022 and 2020, more than half had negative margins. Staffing turnover and paying for travel nurses to address shortages have been significant cost drivers. Nationwide, the Kaufman research said that expenses for U.S. hospitals would climb $135 billion over last year’s levels, with $86 billion representing labor cost increases.

But increased salaries, real estate, and material costs for hospitals all equate to a more significant economic impact, all while many hospital systems struggle to stay profitable. In many areas, the hospital is the largest employer in the region, and as organizations move toward building hospitals as wellness centers, they play an increasingly important role in communities.

The DFWHC study was created by Ann K. Peton, director of the National Center for Rural Health Works and the National Center for the Analysis of Healthcare Data.

“These numbers show North Texas hospitals do much more than just provide medical services,” said Peton via release. “The employment and income generated and the ripple effect in other businesses throughout the economy are enormous. The study clearly demonstrates that DFWHC-member hospitals are major players in economic development in Texas.”

 

Source: D CEO Magazine

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