The U.S. healthcare real estate sector remains on solid footing. The national vacancy rate for medical office buildings (MOBs) fell to an all-time low in 2017 while sales volume rose and capitalization (cap) rates fell.
The healthcare industry is still facing challenges in the form of uncertainty, financial scrutiny and changes to Medicare, Medicaid and the Affordable Care Act (ACA). There is the potential for a decline in provider income and some corporations are planning to provide direct insurance and healthcare for their employees.
While investors should be cognizant of the issues noted above, the medical office sector remains attractive in terms of both stability and diversification. Healthcare needs are a constant and the U.S. population continues to age.
- Vacancy: National MOB vacancy fell for the sixth successive year in 2017 to an all-time low of 7.3%.
- Absorption: MOB net absorption fell by 25% in 2017 to 17.2 million square feet, after a record year in 2016, but remained above the long-term average.
- Rents: National full-service gross MOB rents increased by 1% in 2017. Boston, San Diego and Seattle saw the strongest rent growth among the major markets. Rent growth remains strong in the leading markets led by Houston and Boston while west coast markets garner the highest rents.
- Construction: Following 16.2 million square feet of MOB deliveries in 2017, down 15% from the prior year, the 2018 total is set to rise to 20.5 million square feet. Median cost per project rose by 19% for MOBs and 23% for hospitals in 2017.
- Sales: Total investment in MOBs rose from $9.2 billion in 2016 to $11.3 billion in 2017, while cap rates compressed to an average of 6.4%.
For more details, download Colliers International’s 2018 Healthcare Marketplace Report.