Positive Outcomes and Positive Returns: The Resurgence of the Medical Office Market

Key Takeaways

>  Despite uncertainty regarding the full impact of the Affordable
Care Act (ACA), overall tenant demand for healthcare real estate continues to increase. That demand is supported by expectations of an increase in the number of people insured and the aging of the large baby boom population.

>  Medical office vacancy rates are at the lowest level since the recession and continue to decline. However, the market is bifurcated with higher vacancies in older, less adaptable buildings.

>  Absorption continues to increase. Modern, flexible, well-located spaces that facilitate collaboration and are capable of handling rapid changes in technology are in the highest demand.

>  Both the amount of new supply coming online and the amount of space under construction have been trending down since the recession and remained low in H1 2014.

>  Rents have remained stable , in part due to the low interest rate climate.

>  Investor demand in the medical office asset class remains strong,

particularly for investment or near-investment grade properties.

>  Capitalization rates continue to compress from already historically low levels. A bifurcation exists, however, with a wide spread between cap rates for investment-grade product and below investment-grade properties. 

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