Last year, healthcare real estate was boasting excellent stats: the national vacancy rate reached an all-time low of 7.4 percent, while net absorption was the highest since 2008 and the average rent was on the rise. The commercial real estate market took note of the positive prognosis, and investments remained strong throughout the year.
Now that we have entered a new year – and a new political era – medical providers and health system owners have to consider new market conditions. Legal and governmental shifts could impact medical businesses along with real estate strategies, especially as the Affordable Care Act is facing repeal and alternative plans are still being outlined. Final terms for the site-neutral payment rule and the impact it has on Medicare reimbursements for off-campus medical facilities will also shape the way health care providers evaluate potential office space. Overall, it is likely that professionals in the market will be slow to move forward with any plans.
Beyond the 8 percent increase in rent noted in 2016, the healthcare industry is seeing an increase in costs across the board. Service prices are increasing, as are the costs for construction materials and labor. And, while health care expenditures are on the rise due to an aging population of Boomers, providers aren’t receiving the same level of reimbursement through insurance billing. What’s more, many medical offices are working to preserve strong margins while meeting the demand for enhanced treatments and innovative therapies.
The good news for commercial real estate investors is that the consumer demand for medical services will remain high in years to come, and fundamentals will hold steady. Construction deliveries in the MOB category were projected to reach 22 million square feet and cap rates are at 6.7 percent. But successfully navigating the changing medical office environment will require an in-depth knowledge of market conditions and the consumer landscape. That’s where Intelica Commercial Real Estate can be a tremendous asset to investors. Our market expertise makes the difference as our clients weigh the risks and rewards of new construction, lease negotiations and MOB investments.