The Medical Office Sector Continues to Hold Steady
WealthManagement.com Features Lee & Associates Twin Cities's Susan Wilson and Chris Jacobson
The medical office sector couldn’t be in better shape despite fears of the impact from telemedicine and given the demand for health care, the industry should be robust over the next 12 months, according to analysts.
A segment known for its stability and resistance to recessions set record highs for asking rents in 2021 as vacancies decreased–a trend expected through the next year and beyond. Development of new medical office buildings continues after a slowdown at the start of the COVID-19 pandemic, and for quality properties on the market, investors are gobbling them up quicker than ever. That’s coming off record highs in sales volume and pricing in 2021.
None of that demand is a surprise given an aging population along with migrations and relocations that have picked up since the start of the pandemic in 2020.
“I think you’re seeing vacancy in older medical buildings that are now picking up office tenants, while class-A and class-B (medical offices) have lower vacancy. And if they are strictly medical they do much better,” said Susan Wilson, a healthcare real estate advisor for Lee & Associates and vice president of Lee & Associates Healthcare group.
Medical office rents historically grow at a steady rate of 2 percent to 3 percent year–over-year, but that pattern is being challenged by current conditions.
There are limits, however, to how much medical office rents can grow, according to Chris Jacobson, a healthcare real estate advisor for Lee & Associates and vice president of Lee Healthcare.
“It’s never going to go through the roof,” Jacobson said. “They can only afford what they can afford with reimbursement from insurance. They can only see so many patients and do so many procedures a day. It’s not like they can sell more coffee.”
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