Economy Watch: Aging Population to Support Medical Office Demand

The population of people over age 65 is expected to nearly double between 2015 and 2055, which is an encouraging factor supporting long-term demand for medical office space, according to a new CBRE Research report.

Source: CBRE Research, 2017 U.S. Medical Office and Health Care Report
Source: CBRE Research, 2017 U.S. Medical Office and Health Care Report

The future of health care policy at the national level might be uncertain, but the long-term demand for U.S. medical office space is likely to be well-supported by demographics, according to a new CBRE Research report. The main reason: the population of people over 65 will nearly double between 2015 and 2055. By that end date, most of the Baby Boomers will be gone, but a new wave of Millennials will be elderly.

In the more immediate future, certain markets are going to experience more growth in the population above 65 than others. Phoenix, for instance, is forecast to gain 11.9 percent in overall population, but 29.4 percent in the over-65 set between now and 2021. Other strong elderly population gainers are Las Vegas, South Florida, Atlanta and Dallas/Ft. Worth—all more than 25 percent by 2021.

Demand outpaces supply

This growth will drive medical office absorption, but the trend is already in place. Since 2010, absorption of medical office space has outpaced completions of new supply, the report noted. That has steadily driven the national vacancy rate for medical office space down to 8 percent as of the first quarter of 2017, a decrease of 300 basis points from first-quarter 2010.

So far, medical office rents haven’t ballooned overall in response to high absorption, the report said, except in supply-constrained markets. Overall asking rents for such space has remained essentially flat for the past seven years, ranging between $22 and $23 per square foot. The highest rent growth for medical office space since 2010 is in greater New York, up about 83 percent since then. Other high-growth markets for rents are San Francisco and other California markets.