Medical Office Hot in Both Transactions and Development

Ian Ritter is Online Content Manager at GRS Group

Ian Ritter is Online Content Manager at GRS Group

The medical office building sector of commercial real estate continues to garner attention. Transactions continue to increase, and it is one of the only areas of the industry that can boast what seems to be a strong development pipeline.

A recent GlobeSt.com article summarized a research report by healthcare investment firm Hammond Hanlon Camp, illustrating how MOB sales are booming. The article says that more than $6.4 billion of transactions were made in this commercial real estate sector last year, up from $5.2 billion the prior year.

Additionally, year-over-year MOB cap rates, for transactions in excess of $5 million, dropped from eight percent to 7.1 percent in the fourth quarter. Pricing per square foot also went up, to $248 from $222.

Speaking about the sale of three hospitals in Tampa Bay, Fla., in November, that Hammond Hanlon Camp advised, the outfit’s principal, Richard Bayman summed up the trend of MOB transactions taking place in the commercial real estate industry. “This transaction is consistent with what we are seeing across the country as health systems seek to strengthen and expand their networks through consolidation in local markets.”

Meanwhile, development is ramping in a big way due to the Affordable Care Act, long life expectancies and technological advances, according to Newmark Grubb Knight Frank’s Healthcare Real Estate Outlook 2013. The report says: “In the long term, demand for space can only strengthen with the addition of 32 million people to insurance rolls and the rapid growth in the 65-plus age group, which as a whole makes more frequent doctor visits than their younger cohorts.”

Besides new development and redevelopment of older facilities, we are also starting to see the trend of medical facilities taking up vacant space in shopping centers.

And this is by no means a scientific indicator of the health of medical-office development, but I did a recent Google News search on “medical office development,” and it got quite a few hits. There was an article about a new $48-million MOB facility in Short Pump, Va.; a facility in Merrimack, Md.; an acute rehabilitation hospital was approved in Evanston, Ohio. And the list keeps going.

The medical-office sector, though a very specialized area of commercial real estate, continues to take off. It would be wise for investors to consider taking the ride.

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