Secondary Markets Less Affected during Pandemic
The medical office building sector has held up remarkably well during the COVID-19 pandemic and continues to be an attractive asset class to investors for it’s resilience. Occupancy has remained stable throughout 2020 and into 2021, but quarterly absorption reflects some level of negative impact, although short in duration, in the third quarter of last year. While the average each quarter for absorption in the top 50 markets has been around 3.2 million square feet, in 3Q20 that total fell to just 800K. Interestingly, this impact shows to a greater extent in the largest 10 markets. Markets 11-50 had significantly greater absorption in 2Q20 and made up most of the absorption total in 3Q20. These two groups, the largest ten markets and the markets 11-50, are very close in size and have had a steady trend of project deliveries over the last few years.
Major metro areas with their densely packed populations have been forced to take greater shutdown measures to slow the spread of COVID, which may in turn have increased pressure on physician groups and hospital systems in those areas. There is also a continued population shift away from large metro areas to lower cost metros in the Midwest and South. This trend may have been intensified by the pandemic. Since 3Q, both groups have rebounded in terms of absorption and occupancy continues to remain solid at 91.6%. Stay tuned to follow this and other developing trends!