Aging Baby Boomers, an uptick in the number of consumers who now have medical insurance and new treatment options are all fueling the country’s medical office sector. And, according to the latest research from Marcus & Millichap, these factors should lead to a continued boom in the need for medical office space.
Marcus & Millichap, in its 2020 Office Investment Forecast, reported that builders are expected to add 8 million square feet of medical office space to the market this year. That follows a 2019 in which they increased medical office stock by 10.6 million square feet.
Vacancies in medical office space are expected to fall, too. Marcus & Millichap says that the medical office space should see positive absorption of 8.7 million square feet in 2020. Nationwide, the vacancy rate in this sector is expected to fall 20 basis points to 8.6 percent. That is near a cyclical low of 8.4 percent that this sector hit at the end of 2017 and 2018.
With all these positive factors, it’s little surprise that asking rents in the medical office space are expected to rise, too. Marcus & Millichap said that the average asking rent for medical office space is expected to increase by 2.6 percent this year, with the average rent climbing to $24.25 a square foot by the end of the year.
This comes after average rents for medical office space rose just 1.8 percent on average during the past five years.
The fuel powering this boom? Baby Boomers are getting older. Marcus & Millichap reported that 10,000 Baby Boomers are now celebrating their birthdays each day. And these older adults need more medical care. As Marcus’ report says, people from the ages of 65 to 74 need three times as many healthcare visits as do people younger than 45.
The aging population has also resulted in a larger share of adults insured by Medicare. This means that a greater portion of these older adults have access to medical insurance, which encourages them to seek treatments that they might otherwise have skipped.
Another major factor impacting the healthcare sector? Patient treatment continues to evolve. Today, more patients are treated in smaller-scale medical offices than at big hospitals. Moving these services away from hospitals reduces the cost of care and makes medical services more convenient for patients.
Medical office space should continue to be an attractive class for investors, Marcus & Millichap says. That’s largey because this space is considered a recession-resistant asset class. People need medical care whether the economy is surging or struggling.
According to Marcus & Millichap, the number of medical office properties that traded in 2019 was more than double the count at the peak of the last cycle in 2008.
