Strong Demand for Medical Office Buildings into 2017
Though the healthcare market is facing some initial uncertainty for what changes to the Affordable Healthcare Act could mean for future budgets and operation costs, signs point to a continued strong market for Medical Office Buildings nationwide and in the Atlanta area particularly. With vacancy level at an all-time low, rising rents, strong investment activity, and demographic trends towards off-campus medical convenience, the MOB market is likely to remain strong enough to flourish through the temporary uncertainty.
National Vacancy Level for Medical Office Buildings is Low
During the healthcare real estate expansion of 2016, the national vacancy level for medical office buildings hit an all-time low of 7.4% by year end, with net absorption increasing 25% to its highest rate since 2008. Vacancy rates for Atlanta MOBs was at 10.8%, putting demand on par with the MOB market in Phoenix, AZ, Washington, D.C., Chicago, IL, and Dallas, TX. In response, there was a healthy rise in MOB development projects begun in 2016 that are set to deliver in 2017, but the additions are not likely to significantly dent demand. Nationally, the square feet delivery total for MOB developments in 2017 will represent just 1.7% of total MOBs properties already available.
Average Rents for Medical Office Buildings Are Up
Together with the increase in demand, national average full service gross rents for MOBs rose 8% by the beginning of 2017. With demand this high, it’s unlikely 2017 will see a significant drop in average rents, though uncertainty in the healthcare market may make health care tenants more hesitant to agree to higher rates. The Atlanta gross rent per foot for MOBs at the end of 2016 was up to $20.95 psf. When considering new tenants, realize that healthcare real estate decisions may tend towards the conservative towards the beginning of the year, with the majority of expansion projects funded going towards on-campus hospital medical facility construction rather than off-site investments.
Strong Investment In Medical Office Building Properties
Investment in MOB properties and developments remained strong in 2016. Healthcare providers are largely regarded as stable tenants and a safe investment. Even with industry uncertainty around the ACA repeal, an aging population means the need for healthcare growth is all but assured, and this is an industry that is accustomed to being required to continually innovate. At the same time, healthcare is becoming more consumer-driven, and convenient hubs offering a variety of medical services in one place are both becoming more popular and appearing more financially resilient.
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