frequency to tailor existing retail space that is in a prime central location or benefits from other amenities like ample parking to meet their needs . In this manner , retail properties that , for whatever reason , are not attracting the traditional tenant base can pivot to the ever-expanding medical office sector to keep properties occupied . Signing leases with this growing tenant base affords landlords cash flow stability and more predictable revenue because office space that caters to the medical field tends to attract stable tenants as well as a steady patient base — meaning tenants have the means to pay .
Capital markets also indicate positivity related to the health of the medical office subsector . Prior to 2Q2020 , the delinquency rate on loans secured by medical office properties remained consistently below 0.5 percent . Even though the delinquency rate peaked at 2 percent in June 2020 , that pales in comparison to the hotel sector , which peaked north of 20 percent . Granted , the nature of the pandemic was such that medical facilities were , and remain , in high demand while travel was limited . It is likely that the elevated delinquency rate among medical offices came from cosmetic practices whose services were deemed nonessential for much of 2020 . Although the rate has receded , it is still quite elevated , fluctuating anywhere between 0.7 percent and 1.7 percent in the 12-month period from May 2021 to April 2021 . While medical offices are outperforming all other sectors , their delinquency rates appear to be holding steadily above 1 percent despite the property subtype ’ s historic average delinquency rates . Nonetheless , this slight structural shift in repayment behavior among borrowers in the medical office space does not detract from the creditworthiness of the sector , as demand for health care — an essential service — will always remain elevated .
Data from Pivotal Analytics provides insight into the saturation of medical office space in certain markets . ( The saturation rate is the total percentage of key procedures performed in ambulatory facilities , which consists of outpatient procedures only .) The table shown above right presents the top and bottom five markets by saturation . Interestingly , areas historically attractive to older demographics , such as Las Vegas , Phoenix , and Sarasota , Fla ., have an established presence of medical office space . On the other hand , some of the bottom five metros across the Sunbelt ( including Albuquerque , N . M ., and Oklahoma City ) and the Pacific Northwest ( Boise , Idaho ) present an opportunity for expansion as they are growth cities attracting corporate relocations and talent .
Loans 60 + Days Delinquent by Property Type
Percentage of Loans Delinquent
Multifamily Office Lodging Retail Industrial Medical Office 20 %
15 %
10 %
5 %
0 %
Aug . 2019 Oct . 2019
Dec . 2019
Source : Moody ' s Analytics CRE
Share of Key Procedures Performed in Ambulatory Facilities : Top and Bottom Five Metros
|
Percentage |
|
Percentage |
Top Metros |
Share |
Bottom Metros |
Share |
Hartford-East Hartford-Middletown , CT |
77.80 % |
Albuquerque , NM |
22.60 % |
North Port-Sarasota-Bradenton , FL 72.60 % Rochester , NY 22.70 % Raleigh-Cary , NC 70.80 % Boise , ID 23.00 % Las Vegas-Henderson-Paradise , NV 70.50 % Oklahoma City , OK 26.00 % Phoenix-Mesa-Chandler , AZ 68.30 % Worcester , MA 27.00 % Source : Pivotal Analytics
Feb . 2020
April 2020 June 2020
Aug . 2020 Oct . 2020
Dec . 2020 Feb . 2021
April 2021 June 2021
Aug . 2021
Oct . 2021 Dec . 2021
Feb . 2022
Ermengarde Jabir , Ph . D . Economist with Moody ’ s Analytics Reis
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