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Medical Office Buildings Continue to Gain Interest

Did you know that sales volume on healthcare assets remained robust compared to other property types through the entire year in 2020? Medical office properties in particular are rapidly becoming some of the most sought-after prizes for practitioners and investors alike. They have survived the global crisis and emerged showing strong rents and very little vacant space.

Statistics show that a well-functioning medical office trades just as aggressively as some of the best office buildings in downtown areas. Eager buyers spent $3.8 billion on medical office buildings in the fourth quarter of 2020. Practitioners spent a total of $10.6 billion in healthcare real estate just last year alone. Believe it or not, that’s just 3% less than in 2019. Other types of retail or commercial businesses that were not healthcare-related invested or spent 41.8% less to acquire conventional office properties. Average cap rates for medical offices have compresses about 20 basis points year-over-year and the average price per square foot increased by 5.5 percent over that same time. The amount of capital available for real estate and for medical office properties has swelled, proving once again the strong growth in this market.

The amount of space at medical office properties that is occupied by tenants has stayed between 91.5 and 92.5 percent for more than a decade. The occupancy rate barely moves even when major economic disasters occur. Medical offices need physical space to see their patients and that need will only continue to grow. Healthcare real estate is not like retail. People can choose to watch a movie at home vs. going out for a night on the town. However, it is very difficult to defer a medical or dental surgery. Tenants in this space have also become even more dependable.

Buyers interested in medical office building continue to grow even for private investment, advisors, and pension funds. They join the specialized healthcare REITs that have historically been the biggest aggregators of medical office properties. There is an inordinate amount of capital chasing medical office buildings. If supply met the demand and enough properties were available, this industry would likely double the number of business transactions.

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