In past metro highlights we’ve talked about growth markets with lots of construction activity, interesting markets with innovative health systems, metros with the highest sales volume, but what about the tightest markets? The ones with the highest rent growth, the most expensive pricing and the lowest vacancy? Flipping through our Metro Rankings report, San Francisco clearly fits the bill.

Over the past year or so there have been many headlines speaking to how hot the medical real estate sector is. You see them pop up in your email or news feed: "Sales volume is at all time highs"..... "New investors are entering the sector right and left"...."Medical Real Estate Hitting Post Recession Peak". At times like this, many investors are getting priced out of the 'cream' offerings that trade and the heavy weight health system construction projects. So it would stand to reason that those interested parties would look elsewhere....and they are.

As REITs pull back on acquisitions and focus more on refining their portfolios, private equity groups have more than taken up the slack. Total healthcare real estate transaction volume may have cooled ever so slightly - but not much - and so far this year, private investor buyers are making up 76% of that total.

This unassuming market is number 2 in terms of outpatient building deliveries and 4th for total deal volume. Even rent growth has been consistently surpassing the national average.

The bread-and-butter medical office building (MOB) deal continues to entail the sale of a single building for a price of less $20 million, often quite a bit less. Such deals, of course, do not typically satisfy the appetites of the sector’s largest investors, including private equity funds, the larger publicly traded REITs, and institutions, as well as foreign capital. Such investors prefer deals that provide immediate scale instead of having to accumulate a portfolio by making smaller, one-building acquisitions.

Houston is the number one metro in terms of square feet of hospital space under construction. As of the end of 2017, Houston had roughly 4.2 million square feet of hospital space under way – about a million square feet ahead of the runner up, New York.

Prior to the start of 2018, several members of the Editorial Advisory Board (EAB) of Healthcare Real Estate Insights™ predicted that the sector would see some transactions in which health systems would buy medical office buildings (MOBs) that they are leasing from third-party owners.

Continuing focus on high medical office sales activity might lead one to wonder where all this activity is occurring. In 2017, more than 25% of sales volume was represented in only 5 metro areas. Who's leading the pack?

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.

...although roughly 25% of inventory is investor owned nationally, the stats vary widely by metro. Some areas are predominantly owned by healthcare providers while other areas have a significant portion, sometimes majority, of the real estate owned by a third party - whether that be a REIT, institutional fund or private investor.