Why are developers building so many medical office buildings and stand-alone clinics today? Since 1980, healthcare spending in the United States has increased 1,000 percent to more than $2.6 trillion. During this same period, the U.S. GDP has only grown 500 percent.
That is one of the key findings of Cushman & Wakefield’s most recent Vital Signs report on the state of the U.S. healthcare and medical office sectors, a report released Jan. 22.
Lorie Damon, managing director and leader of Cushman & Wakefield’s Healthcare Advisory Group, said that the combination of an aging population and life expectancies that continue to rise poses a challenge for healthcare systems as they try to develop long-term real estate strategies.
At the same time, healthcare providers are dealing with the uncertainty that comes with the government’s efforts to repeal the Affordable Care Act.
“We expect continued turbulence among healthcare providers as they adapt to the rapidly changing regulatory and reimbursement landscapes,” Damon said. “Operating margins will continue to be stretched. Rising numbers of un- and under-insured and un-reimbursed care will likely lead to declines in utilization and an increase in bad debt, and those added financial pressures likely will force health systems to assess and adjust their real estate strategies, particularly those that require significant capital outlay.”
Cushman reorted that the U.S. healthcare sector has gone through nearly a decade of steady investment growth and employment. This, of course, has been a boon to healthcare real estate. Healthcare vacancy rates hit a low of 7.7 percent in the third quarter of 2017. This is down significantly from the sector’s vacancy high in 2010, 10.6 percent. The third quarter 2017 figure was also a drop of 60 basis points from the third quarter of 2016.
Healthcare asking rents were up, too. Cushman & Wakefield reported that rents for the healthcare sector were up 1.6 percent in the third quarter of 2017 when compared to the same quarter one year earlier.
Developers recognize how strong the healthcare real estate market is. Cushman & Wakefield in its report cites Revista, which says that 11 million square feet of projects affiliated with health systems were under construction in 2017. At the same time, 13 million square feet of healthcare projects not affiliated with any health systems were also under construction.
This has led to the return of spec medical office projects, another sign of how strong this commercial sector is.
