Last year 77 medical office projects started that will be over 100,000 square feet when completed. That's quite an uptick over previous years when we averaged less than 50.
The MOB Scene
December 17, 2019 Mike Hargrave
Single Property MOB Cap Rates Creeping Up
Overall, MOB cap rates have continued to remain at lower levels compared to just a few years ago. According to Revista’s 3rd Quarter, 2019 Medical Real Estate Transactions Report, the US MOB average cap rate 6.4% which was down slightly from 6.5% in 3Q18.
If you have seen Revista’s metro trends you may have noticed the Baltimore MOB market is one of the tightest in the country. The MOB occupancy rate has averaged between 93.9% and 94.8% since the 2nd quarter of 2018.
So much of the conversation in the industry right now is about placing medical services out into the community to be more convenient and cost effective for patients. But what is that community going to look like in 10 years? 20 years? Flexibility becomes the name of the game.
Let’s take a look at the Jacksonville market. At 7.7 million square feet (MSF), Jacksonville’s MOB market is the 36th largest market in the US based on total SF.
After a slow start to the year, medical office building (MOB) sales have picked up in the second and third quarters (Q2 and Q3), providing a very strong possibility that the final 2019 volume will top $10 billion for the fifth straight year.
It doesn’t look as if anyone is going to dethrone Oakland, Calif.-based Kaiser Permanente as the country’s largest owner of medical real estate anytime soon.
For the sixth consecutive year, Kaiser, a health insurer and provider with 8.6 million members in nine states, sat atop the annual “2018 Top 50 Owners of Medical Real Estate” report compiled by Revista, which gathers and provides a wide variety of healthcare real estate (HRE) data, statistics and reports for its subscribing members.
Taken together, the Hospital and MOB sector is valued at $1 Trillion
There are currently about 600 medical office projects under way across the country. More than 15 percent of those projects include orthopedics. Why do so many projects include this specialty?
Revista is thrilled to announce that Andrew Haslam, Chief Asset Officer for Providence St. Joseph’s Health System and Tom Errath, Director for Harrison Street Real Estate Capital will co-chair the 2020 Revista Medical Real Estate Investment Forum.
The country’s healthcare-focused REITs have always been, and are likely to continue to be, an important investor group in the medical office building (MOB) acquisitions sector.
While MOB transaction activity might have cooled somewhat and MOB construction remains steady, deliveries of hospital projects have been on a spike. Based on projects that have either opened or are scheduled to open by the end of the year, we will be adding roughly 35 million square feet to inventory in 2019.
There’s plenty of talk in the medical office building (MOB) sales sector that even though demand remains as high as ever for the product type, the volume has been quiet so far in 2019. Second quarter (Q2) and year-to-date MOB sales statistics compiled by healthcare real estate (HRE) data firm Revista, which provides a variety of HRE data to subscribers, confirm this notion.
For four straight years, medical office building sales have topped $11 billion in annual volume, according to Revista data.
However, so far in 2019, MOB sales have slowed a bit, with the volume coming in at $1.5 billion in Q1. And while the volume in Q2 has to be compiled, it was certain to be bolstered by the $1.25 billion purchase of the CNL Healthcare Properties MOB portfolio by Welltower Inc. (NYSE: WELL).
Supply/demand and Rent trends will begin appearing in Revista’s products which will enable subscribers to better analyze macro market risks and opportunities.
2019 MOB deal volume continues the cooling trend after coming off historical highs in 2017. While total volume may be down, a theme continues - private investors represent the greatest percentage of acquisitions.
There’s a widespread notion that opportunities to open new urgent care centers (UCCs) in the United States have, for the most part, run their course.
The main culprits, it would seem, have been an over-saturation of such facilities in affluent suburban and Sunbelt markets and a somewhat restrictive payment model that left many patients with higher co-pays than typical doctor visits.
In the past twelve months, over 21 million square feet of medical office space have been delivered across the country. More than 35% of that has been condensed in 10 markets.
Deal reinforces strategy of creating value by packaging MOBs into large portfolios
With MOB sales off to a somewhat slow start in early 2019, the closing of the sector’s second-biggest arm’s length deal of all time is sure to bolster the volume for the year.
On May 15, Toledo, Ohio-based Welltower Inc. (NYSE: WELL), which has invested more than $6 billion in a variety of healthcare asset types since coming off the sidelines in early to mid-2018, reported that it closed on its previously announced $1.25 billion acquisition of 55 MOBs from Orlando, Fla.-based CNL Healthcare Properties, a non-traded healthcare real estate investment trust (REIT).