2Q National Medical Office Buildings Market Survey

2Q National Medical Office Buildings Market Survey

Reprinted with permission by PricewaterhouseCooper LLP from its Second Quarter 2010 Korpacz Real Estate Investor Survey®

MANY INVESTORS AGREE THAT U.S. MEDICAL OFFICE BUILDING (MOB) SPACE HAS OUTPERFORMED OTHER ASSET CLASSES DURING THE RECENT DOWN TURN.

“High quality MOB space has shown its stability, even in difficult times, which is leading to increased investor demand for this property type,” remarks a participant. Further, some investors believe that the federal health care reform legislation will result in an overall increase in demand for medical office space, specifically out-patient centers and clinics geared to handle increases inpatient traffic. “Under the new healthcare legislation, an infill nonprofit hospital will be required to do more procedures, benefiting medical office facilities located proximate to such hospitals,” a participant explains.

Due to MOB’s stable performance during the recession and the passage of new healthcare legislation, leasing activity and new construction have increased in the MOB market. For instance, Isis Pharmaceuticals signed a 20-year, 146,000-square-foot lease for a new facility in Carlsbad, California being developed by BioMed Realty Trust. In addition, two MOB leases were signed this quarter in San Diego, including a renewal for 48,880 square feet by Phamatech, a global healthcare firm, and a 95,731-square-foot new deal by CareFusion, a medical-technology company. In Dallas, a newly constructed, 92,000-square-foot MOB recently opened with Ophthalmology Surgery Center of Dallas taking 25,000 square feet as the anchor tenant. This property is located near Texas Health Presbyterian Hospital and Medical City Dallas.

With tenant demand on the rise, investor interest is gaining momentum amid limited high-quality MOB inventory. One participant notes, “There is a window of opportunity for Class A on-campus MOB product to trade at favorable levels to sellers over the next three to six months since there is a lack of top-flight product on the market relative to the abundance of available money by several REITs.” On the heels of a large portfolio buy last quarter, Healthcare Trust of America (HTA) acquired a 13-building MOB portfolio for $217.00 per square foot this quarter. The assets are located nationwide and, on average, are 98.5% leased with remaining lease terms of ten years or greater. HTA also purchased a 99.0% leased, 191,612 – square-foot MOB in Pittsburgh for just over $212.00 per square foot this quarter. In another single-asset trade, Rady Children’s Hospital acquired a 28,600-square-foot MOB in California for $232.00 per square foot.

Despite the recent revitalization of both leasing and sales activity, most investors continue to model conservative rent growth in their cash flows as indicated by the 17-basis-point decline in this quarter’s average initial-year market rent change rate (see Table). On the contrary, this market’s average overall capitalization rate fell for the third straight quarter, landing at 8.53%. The majority of Survey participants (67.0%) anticipate OARs holding steady for MOB assets over the next six months.

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MANY INVESTORS AGREE THAT U.S. MEDICAL OFFICE BUILDING (MOB) SPACE HAS OUTPERFORMED OTHER ASSET CLASSES DURING THE RECENT DOWN TURN.

for more information see Korpacz Real Estate Investor Survey at http://www.pwc.com/us/korpaczsurvey

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2 Responses to “2Q National Medical Office Buildings Market Survey”
  1. Any idea of the present and/or future status of medical office building market in central New Jersey, specifically Middlesex, Somerset & Mercer counties?

    by Lawrence Davanzo, DO
    on 21. Jul, 2010

  2. […] 2Q National Medical Office Buildings Market Survey | BlackSwan Zine […]

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