A growing customer base and a shift in the way healthcare services are delivered is fueling a positive outlook for medical office buildings.
From an investor’s perspective, medical office buildings (MOBs) are an attractive niche that is outperforming the broader office market. In fact, medical office vacancy rates are at the lowest level since 2007 and are expected to continue to decline. The vacancy rate on medical office space declined to 9.5% in the third quarter, according to Colliers International. That puts medical office vacancies more than 300 basis points lower than traditional office space, which is reporting vacancies at 12.7%.
Those metrics are grabbing investor attention. What is even more compelling is that MOBs are poised to benefit from explosive growth still ahead in the healthcare sector. Obamacare and an aging population of baby boomers is creating a much larger pool of patients/customers that are expected to rely more heavily on health care services in the future. In fact, some industry estimates expect that healthcare spending will nearly double from $3 trillion in 2014 to $5.5 trillion in 2024.
President Obama’s Affordable Care Act created an additional 17 million-plus Americans who now have healthcare insurance coverage. Aging baby boomers also represent a large segment of the population who are expected to have a growing need for healthcare services going forward. People are living longer and they will require more treatment as they age. Based on data from Pew Research, the population of boomers ages 51 to 69 reached 74.9 million last year, while the silent generation of people ages 70 to 87 is still sizable at 47 million.
MOBs also are getting an added boost from the shift in the delivery of healthcare services from on-site at hospitals to a greater reliance on a growing network of outpatient clinics and specialty services housed at medical office buildings. These days, MOB tenants run the gamut from essentials such as diagnostic imaging, cancer treatment and physical therapy to plastic surgeons, dentists, and weight loss clinics.
Many medical tenants like the synergy of locating on or nearby to hospital campuses. Oftentimes, hospitals themselves are producing a steady supply of tenants for those MOBs. Large healthcare systems are gobbling up smaller physician groups and private practices to bring them under the wing of the hospital group. That industry consolidation is resulting in more clustering of former private practices in office space in close proximity to hospitals.
Despite those changes, hospitals remain keenly focused on their core business of serving patients – not managing real estate. As such, the majority of MOBs are privately developed and owned by investment groups, which is creating new direct real estate investment opportunities for accredited investors. To that point, the CrowdStreet Marketplace is continuing to expand its offerings to include best-in-class medical office investing opportunities in markets across the country. One such example is Everest’s West Central Medical Center, a MOB across the street from Grady Memorial Hospital in the suburbs of Columbus, OH, and sponsored by a highly experienced team of real estate professionals.
Although the outlook for the MOB sector as a whole remains very positive, it is important to evaluate offerings on a case-by-case basis. Numerous factors impact individual MOB property values and return expectations, including the location, the specialty practice of the tenants, credit quality and lease terms, as well as regional economic and demographic trends.
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