2014 U.S. Medical Office Outlook

by CoyDavidson on February 19, 2014

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The U.S. health care industry is undergoing a seismic shift due to long-term changes in demographics, and near-term structural and policy changes. Compounding the long-anticipated surge in demand for health care services from the aging baby boomer population, the passage of the Affordable Care Act (ACA) is expected to add 32 million to the ranks of the insured. At the same time, implementation of ACA regulations concerning patient care, cost control, electronic recordkeeping, etc., will fundamentally alter the business models of health care providers of all sizes.

Colliers International, a global leader in commercial real estate services, today released its first-ever medical office report. The report, titled “Medical Office Trends and 2014 Outlook,” outlines trends in the health care market and provides a comprehensive view into the key drivers impacting the medical office space.

The report, published by Colliers International’s research department and featuring contributions from Colliers’ Healthcare Services Group, analyzes current trends in the health care industry and their impact on the health care real estate market, offering both a leasing and investment point of view. Colliers’ Healthcare Services Group focuses solely on health care-related real estate and is led by its national directors, John S. Wadsworth and Jim Allen.

“Our overall finding is that the consolidation of the health care industry—in large part a result of the Affordable Care Act’s regulations—has created many trends that are impacting the medical office market,” said John S. Wadsworth, Colliers vice president and national director, Healthcare Services Group. “This consolidation trend is likely to continue, and has significant implications for the medical office market, both in terms of leasing activity and construction of new facilities.”

Some key insights from the report include:

  • Short term, health care demand is being driven by an additional 32 million people insured by the Affordable Care Act (ACA); longer term, demand will be driven by more than 20 percent of the U.S. population being 65 or older by 2029.
  • ACA regulations mean more consolidation among health care  providers and insurers, further tilting medical office demand to large companies.
  • Medical office accounts for 25 percent of all U.S. office space under construction. Construction has decreased significantly since the recession: 1.8 MSF in the first half of 2013 vs. 8.4 MSF in the first half 2009 (markets tracked by Colliers).
  • The decrease in construction is attributable to conversion of non-traditional properties, especially big-box retail and suburban shopping centers, and uncertainty regarding impact of ACA on health care delivery mechanisms.
  • There was $2.47 billion in medical office investment sales transactions in Q4 2013, the highest since Q4 2006, and even exceeding the Q4 2012 surge prior to the 2013 tax increases. This year is expected to be a strong year in terms of medical office investment sales, given the scarcity of properties, availability of capital, and opportunities in secondary/tertiary markets.

KeyTakeaways Healthcare CRE 2014

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