Reform, Demographics Bode Well for Medical Office Investors
National Real Estate Investor reports: Already enjoying a surge in investment activity, the burgeoning medical office sector is poised for an even larger boost, if Congress approves President Obama’s sweeping overhaul of the nation’s health care system. The plan could cost at least $1 trillion over the first 10 years, according to experts.
Investors also have responded positively to the reform. Last year, the dollar volume of medical office transactions in Massachusetts rose 55%. With the state’s budget shortfall, however, Massachusetts is struggling to pay for the program, which requires nearly everyone in the state to have health insurance.
Whatever the eventual outcome of national health care reform, property fundamentals for the medical office sector are already on a firm footing. “Out of all the niches, medical office has the lowest amount of distress at only 1%, or nearly $200 million, which is nothing compared to the $18 billion in the traditional office sector,” explains Jessica Ruderman, senior analyst with New York-based research firm Real Capital Analytics. The research firm defines distressed properties as those that are in foreclosure, bankruptcy or for which the loan is being restructured.
Nationally, medical office transactions of $5 million and higher are on the rise. For the first half of 2009, medical office sales accounted for 8.4% of all office transactions, compared with 7.6% in the same period last year. “Typically it’s been around 2% to 4% for all other years,” notes Ruderman.
Although the economy has caused office vacancy rates to spike across the board, the blow to medical office appears much less severe. The vacancy rate for medical office is projected to end the year at 12.4%, up 100 basis points from a year earlier, while general office vacancies are expected to breach 17%.
But perhaps the most distinguishing characteristic of the medical office sector is strong valuations. At mid-year, medical office space fetched $251 per sq. ft., up from $218 per sq. ft. in mid 2008, a 15% jump. In contrast, the general office valuations were down 24% over the same period. “If you’re looking for a safe asset that you want to hold long term,” says Ruderman. “I would say buy medical office.”
View the full article on National Real Estate Investor: Reform, Demographics Bode Well for Medical Office Investors
Posted by: Nina Turner