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Medical Office Space Demand Increasing

August 25, 2015


Great article today on the rising demand for medical office space - something that PGP has been noticing as well.  We are closing up a deal on a pair of medical condos in Delaware, and are actively looking for more deals in the space.


From the article:


More demand has led to more development. Marcus & Millichap estimates that construction completions this year will hit 8.8 million sq. ft., significantly higher than the 7.1 million sq. ft. delivered in 2014. The vacancy rate in the MOB sector is currently at 9.7 percent, representing a drop of 20 basis points over the past 12 months.


“Deliveries are still way below where they need to be, given the number of new insureds in the system,” Smelter says.


Health care systems want to capture more market share by providing facilities that can be placed near suburban areas, he adds. These systems are picking up the former individual practice doctors who now find it more feasible to join large groups. This has pushed up space needs for properties.


“Ten years ago, doctors would be occupying about 4,000 sq. ft. at a six-story office building. Today, these large physician groups are taking an entire floor or two floors,” Smelter says.


The advent of these larger tenants has boosted property values. A hospital group has a better credit rating, generating strong investor interest. Brand new facilities with leases that extend 10 years or longer in strong urban locations, are trading at cap rates in the low-6-percent range, with top tier assets reaching into the 5-percent range.


Entire Article Here:

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