What’s Behind Stepped-Up Demand for MOBs

The health-care job market and industry consolidation are just two of the key forces shaping this vibrant sector, Marcus & Millichap reports.
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Sure, an aging population is key to the growth of the medical office sector, but it’s a bit more complex than that, according to a new second-half 2019 report from Marcus & Millichap. For example, consider that the 2.7 percent increase in health-care services employment is running up against a shortage of qualified medical services personnel. That in turn favors the expansion of outpatient care—and that trend favors purpose-built medical office facilities, the report explains.

In addition, the nationwide decrease in physician-owned practices, from nearly half of all locations in 2012 to just 31 percent in 2018, has created efficiencies that have helped to maintain investor interest. And behind all that, the U.S. population is indeed aging. Those aged 65 and older will make up 26 percent of the total population by 2029, versus only 15 percent in 2009. Consequently, the medical office building asset class continues to see growing deliveries, substantial deal flow, generally stable vacancies and rising rents and prices.

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Nationally, about 10.8 million square feet of MOB space is projected to be delivered this year, or about half a million more than in 2018, according to the report. MOB sales volume increased by 17 percent versus the prior 12-month period. Pricing rose rather less, by 3 percent, to just more than $255 per square foot on average. The national average vacancy increased by 30 basis points to 8.6 percent, after remaining unchanged from 2017 to 2018. Meanwhile, average rents rose by 1.6 percent in the third quarter, to $23.41 per square foot, after increasing 2.9 percent the previous year.

Deals large and small

Earlier this month, Welltower announced its pending $1.7 billion acquisitions of a 1.5 million-square-foot MOB portfolio and 2 million square feet of outpatient medical facilities. The deals will make the REIT the nation’s largest commercial owner of MOB space, with a nationwide portfolio of nearly 30 million square feet. Barely a week before that, in what could be thought of as an “infill deal,” ShareMD bought two Florida MOBs for $33.2 million from a Miami investor.