• Medical office sales volume held up well in 2020, far better than office overall.
• Institutional capital is chasing this asset class, representing more than a third of year-to-date volume.
• Fundamentals remain healthy, with vacancies at 8.7%. Rents have continued to rise.
• With medical office a widely available asset class; investors have opportunities nearly everywhere.
• Pricing continues to rise, and cap rates have compressed in recent quarters.

Office investment is starting to show signs of life, and some recent West Coast deals offered glimmers of a return to strong capital flows. Life science has remained a key strength driving sales, but so has medical office. While aggregate office volume was down 27% last year, the total $11.8 billion in medical office volume was only 5.6% lower than the year before, per data from Real Capital Analytics (RCA); however, fourth quarter volume finished in line with 2019 figures. The biggest difference was the makeup of the buyer pool.

Institutional investors focused on medical office last year and have continued to do so again this year, making up 31% of the asset class’ buyers in 2020 and 35% in the early months of 2021. This plays into trends we have seen elsewhere with investment in cold storage, life science, data centers, and other asset classes tied to infrastructure or demographic shifts. Medical office is a key beneficiary of the latter as all Baby Boomers will be 65 or older by 2030. Aging tends to increase the need for medical services. Constant medical breakthroughs underpin increased life expectancies, and in turn, support medical office demand.

“Healthcare real estate continues to be one of the most desirable asset classes – market demographics are trending favorably, demand outstrips supply, cap rates continue to compress, and rental rates are rising,” explains Shawn Janus, Colliers’ National Director of Healthcare Services.

Pricing continues to move up: RCA shows a median price per square foot of $324 this year and a median cap rate of 5.4%. Meanwhile, office cap rates have stalled at 6.6% nationally, with pricing still at a record-high $236 per square foot. With a 1.7-billion-square-foot inventory, medical office offers opportunities for investors throughout the country. Unlike life science, highly concentrated in a few markets across the country, the need for medical office is everywhere.