BY THE NUMBERS WITH
By Ermengarde Jabir , Ph . D .
THE SUPERSTAR OF THE FUTURE ?
Medical office is a promising specialty sector that boasts strong demographically driven demand and stable tenant bases .
While a vast array of properties provide space for health care services — including seniors housing and hospital facilities — medical office buildings are a leading type of property in what is an emerging specialty sector , attracting ever-increasing interest from both developers and investors . Whether purpose-built or adapted to an existing space , medical office space is a hot commodity — with demand in the U . S . being driven by an aging population whose health care needs improve from having providers who are more locally accessible .
Medical Office Share of New Office Construction
12
30 %
25 %
20 %
15 %
10 %
5 %
0 %
COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE
As with so many other CRE sectors , the pandemic rapidly accelerated shifts in medical office space that were already underway long before COVID-19 ’ s arrival . The share of new construction in the office sector dedicated to the medical office subsector illustrates this point . Between 2004 to 2008 , the ratio oscillated around 10 percent . With the onset of the financial crisis , demand for traditional office space fell as companies reassessed both their space needs as well as the size of their workforce in the face of global economic distress . At the same time , the first wave of baby boomers was on the cusp
Ratio of Medical Office New Construction to Total Office New Construction
* Projected Source : Moody ' s Analytics CRE
2004 2005
2006 2007
2008 2009
2010 2011
2012 2013
2014 2015
2016 2017
2018 2019
2020 2021
2022 2023 *
2024 *
2025 * of retirement , nearing the age at which the demand for health care traditionally skyrockets . Developers subsequently pivoted to meet shifting demand , with the share of medical office new construction jumping to approximately 15 percent in 2009 .
Since 2010 , this metric has varied between approximately 20-28 percent . As the second largest generation of adults ( only about 1.5 million people fewer than millennials ) has continued to age , the share of medical office completions has grown . Even though this share dwindled a bit in the late 2010s , the pandemic ratcheted up the need for ample medical office space once again , and the share has ticked upward slightly in the past two years . While the pipeline for new medical office space remains robust over the coming years , as of now , the share is expected to settle at around 15 percent over the next few years .
The transaction volume of medical office space reveals a similar trend where trading of existing properties began to pick up through the first decade of the 21st century and has continued since then . According to data from the Mortgage Bankers Association , origination volume for health care assets is up 81 percent in the first quarter of 2022 year over year . For comparison , the same metric had increased 41 percent year over year in the first quarter of 2019 . Additionally , medical offices tenants are choosing with increasing
SUMMER 2022