Third Party Development Trending Up
In the past, the lion’s share of MOB development has been self developed by the hospital system or provider. In fact historically, third party development has only represented around a quarter of medical office square feet started. Since 2019, we’ve been seeing a shift in this dynamic with more and more projects moving forward with a developer/investor driving the project. In 2019 third party development made up 38% of the MOB square feet started and then in 2020 that figure increase to 44%. You see some familiar names on the list breaking ground in 2020 – Nexcore, Catalyst, Rendina – all starting multiple projects in 2020. But a significant portion of that 44% is actually represented by local developers that don’t necessarily specialize in medical developments. Many as part of a larger project involving residential, retail, regular office and other uses. In general though, this shift suggests an increasing openness to leasing rather than owning by systems and providers, at least when it comes new development.
Geography certainly plays a role in how much of new development activity is self developed. In New York City and Chicago, much less is third party, last year 22% and 33% of starts respectively. In southern Florida though, the mix is exactly opposite. In Miami, almost 100% of projects started in 2020 were third party developed. It’s a similar story in Detroit, Phoenix and Seattle with all three being 80%+ third party. Stay tuned for updates on this and other trends in 2021!