Healthcare Real Estate Insights
HRE: Construction Rising, Vacancies Falling
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MINNETONKA, MN-If the remainder of 2013 follows the course set during the first half, the country could see about 10.3 million square feet of medical office space delivered. That would mark a significant increase from 2012, when 7.8 million square feet of newly constructed healthcare real estate space hit the market.
The construction figures come by way of national real estate firm Marcus & Millichap Real Estate Investment Services, which recently issued its first half Medical Office Research Report.
While the 2013 healthcare real estate construction estimates are good news for those involved, the numbers fall well short of the go-go years of 2007-2009. During that time, however, a good share of all MOB construction was speculative, resulting in a vacancy jump of 170 basis points.
The development landscape today is drastically different. Most notably, of the 5.3 million square feet already delivered or slated for completion in 2013, about 80% has been leased. Most HRE development firms say that even with the economy recovering and demand rising for outpatient space, virtually no speculative MOB development is currently taking place. Nor will it in the future.
The 2013 pipeline includes another 5 million square feet of healthcare real estate space targeted for delivery this year. More than 60% of that remains available for rent, however, which could result in some construction delays.
As Marcus & Millichap notes in its report, the healthcare industry’s shift to a patient-centric and convenience-oriented delivery model is forcing developers and designers to adopt a new specialized approach to medical office development. Health systems are now identifying building features and floor plans that they need to create efficiencies allowing for maximum utility of their space.
As noted, demand remains high for MOB space as the healthcare delivery model shifts its focus to providing more and more care in outpatient facilities. As a result, Marcus & Millichap predicts that the national vacancy rate for MOBs will drop by 20 bps for the second straight year. In 2012, the 20 bps drop brought the national vacancy rate down to 10%. A similar drop in 2013 will bring the vacancy rate below 10% for the first time since 2008.
Marcus & Millichap also reports that healthcare real estate rents remain steady at a national average of $21.65 per square foot – about the same as in 2012.
Murray W. Wolf is the Founder and Publisher of Healthcare Real Estate Insights™, the nation’s first and only publication totally dedicated to covering news and trends in healthcare real estate development, financing and investment. For more information, please visit www.HREInsights.com.
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