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Medical Office Real Estate Demand Is Outpacing Supply In Dallas-Fort Worth

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Medical office space vacancy rates in Dallas-Fort Worth are more than a percentage point below the five-year average as demand remains strong in the region, according to a report from Transwestern.

The report says that the DFW market is undersupplied, but as rents rise, new construction may become more feasible in the future. Interest rates and material costs are rising, which has slowed down all new construction, and the medical office building space is no different. While rent is growing, it hasn’t kept up with other costs, so underwriting for new construction has been more difficult. But if the limited medical office space remains with increasing population in the region, rent prices will rise until new construction can be justified, the report says.

Prior to the pandemic, Dallas was the country’s second-most active medical office building construction market, behind only New York.

“There’s a definite need for increased health care services, more hospital campuses, and more doctors’ offices, but also the real estate that can house them,” says Andrew Matheny, research manager for Transwestern. “When you set that against the construction levels that have been declining over the last couple of years, that’s going to be a significant driver of rents and new development here in the next few years.”

While square footage under construction and 12-month deliveries are down compared to a year ago in the medical office space, those figures could soon be trending in the opposite direction. Vacancy rates in DFW are at 10.2 percent and were 11.6 percent one year ago. Gross rents are also up nearly 3 percent compared to a year ago.

The healthcare market overall continues to grow. Employment for the hospital space is up 4 percent compared to a year ago and 10 percent for other ambulatory service markets. Total available space is at 13.8 percent, which is below the five-year average for the region.

“In the last three to six months, we’re starting to see transactions come through that are bringing revenue in line with these higher costs,” Matheny says. “That may need to happen here for another couple of quarters before we start seeing more groundbreaking projects.”

South Dallas, in-town Dallas, and along the Dallas North Tollway have some of the lowest vacancy rates in Dallas, though there are zero projects under construction in-town and South Dallas, with just 21,000 square feet under construction near the tollway. In the Frisco/Legacy region, there are more than 150,00 sf under construction, but it has one of the highest vacancy rates in the region, at 13. 9 percent. The East Dallas suburbs (17.3 percent) and Grapevine/Southlake (23.1 percent) have higher vacancy rates than Plano/Legacy.

If the market responds as Transwestern is predicting, the new hybrid work environment will probably play a factor.

“If people are spending more time at home, they’re probably going to prefer to see physicians and providers that are close to where they live, so we may see a geographic rebalancing of health care services close to where people live,” Matheny says.

This trend is already making waves with the growing presence of urgent care centers, retail clinics, and free-standing emergency rooms popping up closer to where people live. Hospitals, too, are moving more services away from central hubs and into ambulatory care facilities. It isn’t just more convenient; caring for people outside the hospital is also cheaper.

Telehealth has surged during and after the pandemic, but Matheny doesn’t see it significantly impacting the medical office market.

“While it may allow a physician to reach more people without coming in, physicians still need physical spaces where they can see their patients face to face,” Matheny says. “From a leasing perspective, it’s been a very busy medical office space. There is a demand for it, and I think people want to see their doctor in person.”

 

Source: D CEO Magazine

Three Health Care Investment Trends For 2022

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The healthcare sector was one of the beneficiaries of the pandemic, and the industry is rapidly growing.

As investors plan for 2022, Meridian CEO John Pollock is predicting three trends will drive activity healthcare real estate.

1. More Outpatient Facilities

The transition to outpatient facilities has been an ongoing trend over the last decade, and it accelerated during the pandemic.

“Services are migrating away from the acute care centers to more convenient outpatient centers” Pollock tells GlobeSt.com. “Ambulatory outpatient care facilities have been at the center of Meridian’s focus for years and we expect this trend to continue to accelerate and translate into more opportunities for investors, developers, and providers alike.”

2. Telehealth Gaining Momentum

Telehealth is the second major trend that Pollock sees gaining momentum this year.

“Everyone has read about the rapid adoption of telehealth during the pandemic. It certainly spiked in 2020, and while it has since leveled off, it is still an integral and effective means to deliver care,” Pollack says. “The physical manifestation of that trend is creating more flexible exam and telehealth rooms.”

The telehealth trend supports better patient care, especially as providers rush to build outpatient ambulatory facilities.

“We have seen an increasing need for outpatient ambulatory care centers either de novo or through renovations that require heavy lifting to meet the new care delivery models,” says Pollock. “A huge benefit of telehealth is providing greater access to care. During the pandemic, it provided a vital access point to care when physical appointments were not practical. Telehealth also allows patients in rural settings to have access to a specialist from the urban centers.”

3. A Focus On Behavioral Health

Finally, health care providers will increase focus on behavioral health.

“We are seeing numerous requirements,” says Pollock. “The stress, isolation and loss caused by the pandemic was the final straw and it is now widely known that behavioral health conditions impact one in four Americans.”

It isn’t only cultural changes that are driving activity in the behavioral space, but institutional investors are also backing these projects.

“Institutional investors have warmed up to having behavioral health tenants in their buildings and portfolios, and we have even seen cap rates move toward traditional medical office building valuations,” says Pollock. “It’s very exciting to be a part of creating more access to these much-needed services in our communities.”

 

Source: BenefitsPRO

Analyst: 2022 Should Be Strong For Healthcare M&A

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2022 should be strong for healthcare M&A with a surge of buyers from big tech and retail giants following an aggressive 2021 for the buyouts, Irving Levin Associates, publisher of the LevinPro HC platform predicted.

“It has been a historic year for healthcare M&A, with more than 2,500 deal announcements, largely driven by private equity activity across a variety of sectors,” said Dylan Sammut, Editor of Health iCare at Irving Levin.

Health care merger and acquisition activity soared in the fourth quarter of 2021, hitting a record 733 deals with activity in sectors such as Physician Medical Groups and Long-Term Care drove much of the volume, with 138 and 122 deals, respectively, the firm noted.

Demand for healthcare real estate, such as medical office buildings and properties, helped drive the increase in healthcare M&A. While the number of deals were up, their average size was down.

Deal value in the fourth quarter totaled $120.6 billion, a decline of 11% compared with the $135.5 billion spent in the third quarter, based on disclosed prices. The spending in the fourth quarter of 2021 was 2% lower than the $123.6 billion disclosed in the fourth quarter of 2020.

“Activity in the Home Health & Hospice and Behavioral Health Care sectors remained stable thanks to more patients are seeking alternatives to facility-based care turning toward home health services, and anxiety caused by the effects of the COVID-19 pandemic is causing a surge in individuals seeking mental health treatment and services,” the Irving Levin report said.

The technology sectors saw a 5% drop in the third quarter with M&A activity in the eHealth sector remaining level, with 86 deal announcements.

“Although M&A demand for telehealth providers has softened compared with 2020, we’re seeing increased activity for providers specializing in care coordination and patient engagement as the industry moves to a value-based care system,” the report said.

 

Source: GlobeSt.