2017 will have broken many records in terms of sales transaction activity in healthcare real estate, but it won’t in terms of new construction. Revista data is showing 3 consecutive years with a decrease in starts which is now also affecting total deliveries. Only 16.3M square feet was delivered in 2017, 15% less than the previous year's total of 19.3M.
While there is some concern and uncertainty about what the next year holds for the country’s healthcare system, some of the top professionals involved in healthcare real estate are quite bullish about their business prospects for 2018.
The table below shows the median price per square foot (PPSF) for medical office buildings (MOBs) that have a surgery center and do not have a surgery center and the resulting premium.
Doctor visits will increase 217.6% faster than the population in Los Angeles, Orange, Riverside, San Bernardino, and San Diego Counties. That’s according to an analysis prepared for the California Hospital, Outpatient Facilities & Medical Office Building Summit in Downtown Los Angeles on December 13.
Quick internet searches would tell you that the hospital sector is closing or shrinking due to growth in the outpatient sector. Revista data, however, paints a different picture of the hospital sector.
The medical real estate sector is seeing increasing levels of transaction activity, particularly across hospital real estate and medical office buildings
The Revista mid-year 2017 construction report says to expect 20.9 million square feet (SF) of MOB deliveries in 2018, which would be a rise of 10% over 2016’s 19.0 MSF delivered. And overall, 64% of the MOB expected deliveries in 2018 are expected to be off campus. That is up from 54% observed in 2014.
Well, the time certainly seems right to sell in 2017, as capitalization (cap) rates – the estimated first-year return on an investment – have reached all-time lows. Many high-quality portfolios and single MOBs with credit-rated tenants are trading at cap rates of 6 percent and below, some right around or even under 5 percent.
The portfolio includes several class A assets such as the Harker Heights Medical Pavilion which is 100% leased and on the campus of Seton Medical Center Harker Heights.
The Big Three healthcare REITs – HCP, Welltower and Ventas –remained disciplined with acquisitions while non-listed REIT fundraising has limited their supply of new investment capital.