Resurgence of the Medical Office Market

6878969523_ecc5841bd5The healthcare industry is in a transition period due to advancements in technology, physician and healthcare system acquisitions, and consolidations and alliances.

Between 2009 and 2012, the annual number of hospital mergers and acquisitions more than doubled (from 50 to 107) with a large number of for-profit systems acquiring non-profit organizations. From a real estate perspective, these acquisitions and alliances are causing significant overlap in functions and services, as well as reduced staffing and office space needs where dominant healthcare systems reside.

A research and forecast report conducted by Colliers International revealed several key facts that are impacting the medical office market:

  • Overall tenant demand for healthcare real estate continues to increase, which is supported by expectations of an increase in the number of people insured and the growing baby boomer population.
  • Medical office vacancy rates are at the lowest level since the recession and continue to decline. However, vacancies in older, less adaptable buildings still remain.
  • Modern, flexible, well-located spaces that facilitate collaboration and are capable of handling rapid changes in technology are in the highest demand.
  • Healthcare facility rents have remained stable, mostly due to the low interest rate climate.
  • Investor demand for medical office space remains strong, particularly for investment or near-investment grade properties.

According to Colliers International, “we expect the healthcare real estate sector to remain strong for the foreseeable future. Demographic trends will support continuing demand for the next 25+ years, driving increasing healthcare employment. Positive economic and demographic trends will likely continue to attract investors to the sector. However, a gap will persist between well-located, modern investment-grade properties and older product less suited for current tenant needs and preferences.”

There is no doubt that investors are pouring money into buying and developing healthcare facilities. If you are a current owner, now may be a good time to evaluate the possible sale of your medical facility or gain access to additional capital for office improvements through refinancing your current loan. Either way, defeasance may be required.

Give one of our experienced defeasance facilitators a call at 1-800-624-4779 to strategize. We’ll walk you through your options today.