Healthcare

As the 65-and-older age segment increases by 20 million individuals over the next 10 years, demand for healthcare services will rise, which attracts investors to the long-term growth potential of medical office real estate. Institutional funds and REITs are actively searching for larger healthcare deals and portfolios, and private capital is emerging as a major option in the $5 million to $20 million-price range and could begin to take a larger share of transactions this year, according to Marcus & Millichap’s National Medical Office Research report. A rise in crossover capital is also increasing competition for medical office properties as single-tenant retail investors target similar investment opportunities in this segment for higher yields. For-sale inventory is limited as medical office assets are in high demand with cap rates compressing over the past several years. On-campus medical office buildings command top cap rates, trading at sub-6 percent initial yields for single-tenant properties, while multi-tenant buildings draw first-year returns in the mid-6 to low-7 percent range, according to the report. Off-campus medical office properties with strong tenancy, which often include a healthcare system and long remaining lease terms, are in high demand. These properties fetch initial returns in the mid-6 percent area. …

In 2016, the national vacancy rate for medical office buildings hit an all-time low, net absorption rose to its highest mark since 2008, rents grew and investment activity remained strong. But despite last year’s strong performance, Colliers International’s 2017 Health Care Marketplace Report shows that questions loom for the year ahead in the medical office space. While every administration change causes some degree of uncertainty, this year’s shift is markedly different as healthcare providers and system owners face the possible repeal of the Affordable Care Act and the details of the coverage set to replace it. Healthcare providers are also grappling with the implementation of the final terms for the site-neutral payment rule — which limits the way off-campus facilities are reimbursed by Medicare — and a continued rise in costs, from services provided to construction materials and labor. The report predicts that decision-making in the sector is likely to be delayed for a time, especially if policy changes surrounding the Affordable Care Act evolve over a protracted process. An additional burden to the healthcare industry is the continued aging of a large segment of the U.S. population. Healthcare expenditures per capita surpassed $10,000 in 2016, and are forecast to …