medical office real estate trends 2022
After breaking ground in December 2022, the healthcare facility is opening its doors to the community. It also opens the door to physicians looking to support their operations through on-site retail, such as dermatologists that sell their own private label skincare products or endoscopists who sell weight-loss programs. Below is a primer on what investors need to know about medical office buildings. Learn more today. MOB space under construction as a share of inventory is highest in Atlanta at 6.1%, followed by Miami at 5.9% and Washington, DC at 5.2%. High interest rates and a recession will make 2023 a challenging year for commercial real estate. The public and private sectors must work together to prioritize infrastructure to help the economy grow. Investors, particularly institutional investors, are taking note. Nevertheless, for those willing to understand the sectors nuances, a medical office can be a tremendous addition to an investors portfolio. For example, hospital real estate expansion efforts tend to be heavily regulated (from a compliance standpoint). Thank you for reviewing our 2022 Medical Office Fundamentals Outlook, we hope you find it to be a helpful resource. In 2022, we can continue to expect technology to be at the forefront of healthcare delivery. According to a recent CBRE analysis, although healthcare employment experienced a pandemic-induced dropoff in 2020, the decline (6.4% year-over-year) was much lower than employment losses for the broader economy (11.2%). MOBs are dark blue and office buildings are light blue in the graph provided by Real Capital Analytics below. Increasingly, MOBs are opening on retail pad sites located at larger mixed-use projects. But prior to that, there was a gap. "Multifamily vacancies hit 4.7% in the third quarter of 2021, reverting back to levels seen at the end of 2019," said Victor Calanog, Head of CRE Economics for Moody's Analytics. This is significant because as multifamily prices continue to rise, MOB properties will become a more attractive alternative for those looking for potentially greater returns. Related: Investors Must Think for Themselves. Below, we look at some of the critical considerations when evaluating which medical office building to add to your real estate investment portfolio. Resident demand for electronic payment and communication options is only growing. By all indications, medical office is a resilient sector and as proven during both the Great Recession and pandemic, can weather economic downturns better than other property types. Shovels hit the ground Friday, February 10 in a celebration attended by Caddis executives and other project stakeholders. Moreover, leasing medical office properties can be more time-consuming and complex than leasing traditional office space. This last trend is especially significant. In 2020, the average price per square foot rent for MOB buildings increased by a more substantial 5.5%, a factor attributed to limited supply. It also provides informative data analysis, and is essential . Improve your working capital, reduce fraud and minimize the impact of unexpected disruptions with our treasury solutionsfrom digital portals to integrated payables and receivablesall designed to make your operations smoother and more efficient. Yes, vacancy is ticking up, but the worst the MOB market ever got (in 2009) was about 10.4% vacancy, so its holding up fairly well. Published: Feb. 26, 2023 at 5:26 a.m. Office Space Real Estate Trends. Over the last six to eight years, medical office rents have stayed pretty much within a $4.00/SF range. When buying a medical office building, investors should look at the specialty healthcare services provided by the local hospital network. According to Colliers, office vacancies were at 12.6% in mid-2020 vs. just 8.6% for medical office buildings. The sectors resiliency, as well as strong underlying fundamentals, has increased investor appetite for healthcare-related real estate. If you are an active subscriber, please log in. Atlanta and Chicago are tied for the greatest amount of medical office space under construction among the top ten metro areas, with both at 1.7 million square feet under construction. Related: Draw the Right Lessons to Win Long Term. Another prominent trend is the conversion of vacant retail stores into medical office properties. The transaction values the portfolio at $1.78 billion and is expected to generate $1.3 billion in proceeds for Medical Properties Trust. So whats a LSRE professional to do? On the surface, this may seem high, but it is lower than any other major property type. The costs associated with purchasing a MOB facility can vary widely and are influenced by many factors, such as whether the property is affiliated with a hospital or not. Kelsi Maree Borland is a freelance journalist and magazine writer based in Los Angeles, California. The full content of this article is only available to paid subscribers. In turn, healthcare employment has bounced back in short order. Transaction volume and investment activity are strong indicators about the prospects of any real estate asset class. portfolio, Feature Story: HRE developers see plenty of opportunities in 2023, Feature Story: The top 10 healthcare real estate stories of 2022, Feature Story: Outpatient is the place to be as demand rises, Feature Story: Expert advice Be patient and proactive, Feature Story: The economy is taking its toll on HRE, for now, Feature Story: Behavioral health takes center stage, Feature Story: Lending lull in the HRE sector, News Release: Newmark Facilitates $72.7 Million Sale of Medical Office Building Portfolio, News Release: Grand Opening Planned For Highland Bridge Medical Office, News Release: Just Closed Union Park (Atlanta), News Release: Caddis Construction Groundbreaking Ceremony For New Class A Medical Office Building In Frisco, Texas, News Release: Medical Properties Trust, Inc. Reports Fourth Quarter and Full-year Results, News Release: Pantheon Expands Real Estate Strategy With Investment in Healthcare Platform; Adds Senior Hire to Real Estate Team, News Release: CBRE Group, Inc. Reports Financial Results for Q4 and Full Year 2022, News Release: Broadstone Net Lease Announces Fourth Quarter and Full Year 2022 Results, News Release: Newmark announces the successful closing of a $50.4 million financing secured for a national medical office building portfolio, News Release: Physicians Realty Trust Supplemental Q4 2022 financial report, News Release: Physicians Realty Trust Reports Fourth Quarter 2022 Financial Results, News Release: Sabra Reports Fourth Quarter 2022 Results, News Release: TCC and Beacon Capital Partners Begin Vertical Construction on Hyde Park Labs in Chicago, News Release: NNN Pro Group Leads the Way in 2022 with Record Setting $5.6 Billion in Net Lease Investment Sales, News Release: RX Health & Science Trust Enters Atlanta Market thru Acquisition of Union Park, News Release: Class A medical office building near Denver sells for $5.65M, News Release: Alexandria Real Estate Equities, Inc. Reports: 4Q22 and 2022 Net Income per Share Diluted of $0.31 and $3.18, respectively; and 4Q22 and 2022 FFO per Share Diluted, As Adjusted, of $2.14 and $8.42, respectively, News Release: Goldman Sachs Asset Management and Lane Partners Announce Recapitalization of Southline Phase I with Beacon Capital Partners, News Release: LTC Invests $51 million for Refinance of Seniors Housing Campus in Upscale Atlanta Area, News Release: First Citizens Bank Provides $50.3 Million Financing for Recapitalization of Medical Office Building Portfolio, News Release: A Joint Venture Between Onyx Equities And Machine Investment Group Acquires Two Million Sf Biologics Research And Development Campus In Kenilworth, N.J., From Merck Sharp & Dohme LLC With Plans To Continue Sites Current Use, News Release: Outpatient healthcare services and facilities set for enormous growth, Thought Leaders: JLL Healthcare Perspectives Capital Markets, Life Sciences: U.S. Life Sciences Real Estate Market Shifted in Q3 from White-Hot to Red Hot. The COVID-19 pandemic is continuing to affect office space real estate trends. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by EquityMultiple of the linked or reproduced content. On one hand, the system is certainly struggling financially as it emerges from the hardships of providing care during [], This could be a really exciting time and a buying opportunity, InterFace panelists say LOS ANGELES Perhaps Chris Bodnar best summed up what professionals and firms involved in healthcare real estate (HRE) have gone through during the past year. At the very least, technology will continue to be vital to healthcare in 2022 and continue to grow and evolve. Additionally, tech like AI and drones may be a part of pharmaceutical production and delivery in the futureif not in 2022, then perhaps within a decade or two. The average cap rate for individual MOB sales dropped to 6.61% during this same time (dipping below the previous record lows of 6.7% in Q3 2016). Nevertheless, the industry is experiencing unprecedented change across the continuum of managing, leasing and developing healthcare facilities, requiring innovative strategies to confront economic shifts, capital constraints and the transformation of healthcare delivery. Using Debt for Real Estate Investing: Is It a Good or Bad Idea. Rents remained in this range even during the Great Recession (compared to traditional office rents which decreased by nearly 15% during the 2008-2010 recession). Marketbeat analyzes quarterly market activity including supply, demand and pricing trends. Although there were some surprises and overly negative forecasts surrounding retail and office commercial real estate markets, industrial continues to perform well. Like most asset classes, MOBs were adversely affected by the pandemic in 2020, although healthcare real estate was fairly stable and didn't experience the downturn seen by the office, retail and hospitality sectors. Are you considering commercial real estate investments? Ben Reinberg is Alliance Group Companies' founder and CEO. Collectively, our team has decades of experience, allowing us to provide our clients with the very best in advisor knowledge and expertise. What does this mean for CRE professionals? If there is one thing we can take away from 2020, it is that healthcare must be delivered physically and virtually. Rental revenue for the fourth quarter 2022 increased 19.7% year-over-year to $36.3 million, reflecting the growth in the Company's portfolio. The REITs wellness infrastructure portfolio includes seniors housing, skilled nursing facilities, hospitals and medical office buildings. Exclusive discounts on ALM and GlobeSt events. Estimated targets do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. Over the last six to eight years, medical office rents have stayed pretty much within a $4.00/SF range. These recapitalizations are often the start, or the seeding, of new [], Posted in Companies & People, Transactions, Headwinds are likely to slow activity, but the need for projects will remain strong By John B. Mugford With so many economic headwinds facing almost all business sectors, even the recession-resistant healthcare real estate (HRE) sector, why is a group of development professionals involved in the HRE space remaining so optimistic? The combination will be the fourth largest commercial mortgage REIT, the companies claim. Sign up for the latest industry news and availabilities. . People have grown accustomed to receiving treatment and other healthcare services in a hospital-like setting. Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by EquityMultiple or any other party, and MAY lose value. Finally, 2021 has arrived! 2022 real estate trends to watch Multifamily recovery: Multifamily and retail real estate markets have largely recovered from the early days of the pandemic. All research and other information provided on this website has been prepared for informational purposes only and EquityMultiple assumes no liability or responsibility for any errors or omissions in the content of this website or any linked website. Another reason why real estate investors are bullish about medical office is because of its low vacancy rate compared to traditional office. Therefore, hospitals must use carefully created appraisals when bidding on a property because they are generally not allowed to pay over fair market value (or a price otherwise deemed commercially reasonable) for real estate. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors portfolios. Not only do these markets have strong absorption levels, but they are also among the top markets for absorption as a percentage of net existing rentable area (NRA), with Tampa highest among all markets at nearly 6%. An investors approachif they wish to be more actively involved or instead be a passive investorwill also steer them to specific properties over others. The 2023-24 HREI Resource Guide is now accepting orders. According to Emerging Trends in Real Estate 2022, there will be new opportunities in both urban and suburban markets, with Sun Belt metropolitan areas like Austin, Miami, and Phoenix leading the way. Medical office transactions slowed in Q2 2022 compared to Q2 2021 levels. Our portfolio includes medical, industrial, retail, and office properties, with deals ranging from $1M to $25M. FOURTH QUARTER 2022 HIGHLIGHTS INVESTMENT ACTIVITY Invested $310.3 million at a weighted average initial cash capitalization rate of 6.7%, including the acquisition of 17 properties with [], Posted in Breaking News, Capital Markets, Companies & People, REIT Report, Newmark acted as exclusive advisor to the portfolio owner and borrower, Montecito Medical Real Estate Newmark Senior Managing Director John Nero, Executive Managing Director Ben Appel and Senior Managing Directors Jay Miele and Michael Greeley of Newmarks Healthcare Capital Markets group led the transaction. 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