Sponsored: Healthy Demographic-Driven Demand for Medical Office Buildings

The healthcare sector continues to grow, despite economic headwinds, with medical office buildings (MOBs) making up the largest portion of healthcare real estate transactions at 58 percent. Deal volume reached an all-time high in 2022, with approximately $26 billion of capital invested into the sector.¹ This demand is driven by the sector’s historical recession resilience and the aging U.S. population and its demand for healthcare services. In this video, Nati Kiferbaum, senior vice president of investment product strategy at Inland Private Capital Corporation, speaks to the success of this sector and its continued growth in the coming years.

1 JLL. Healthcare Investor survey and Trends Outlook. United States. 2023

Video Transcript

The healthcare sector’s growing despite economic headwinds, inflationary pressures, and rising interest rates. Deal volume reached an all-time high in 2022 with approximately 26 billion of capital invested into the sector. Medical office buildings made up the largest portion of transactions at 58%, followed by ambulatory surgical centers at just under 27%. We believe the strong capital participation is primarily driven by the sector’s historic recession resilience, coupled with the aging US population and its demand for healthcare services. Occupancy rates for medical office buildings since 2018 have remained steady at 91% to 92% year over year with a high cost of developing a medical office building. Most medical office tenants tend to remain in the same space for long periods of time. Rental rates for medical office buildings have averaged $22.68 per square foot since 2017 with growth increasing by 2% on average year over year. These reasons can support a durable income stream, which tends to provide a strong investment appetite for both equity and debt.

In addition to the real estate and operating fundamentals, an aging US population and the shift to outpatient care are two of the main reasons for the healthcare sector’s strong demand. The United States Census Bureau has predicted that by 2030, all baby boomers will be older than age 65, meaning that one in five Americans will be of retirement age by 2060. Nearly one in four Americans will be 65 years old or older. With this in mind, healthcare organizations may need to offer more services onsite or remotely, which could require multiple locations instead of one large hospital or health system alone. The trend toward outpatient care was accelerated by the Covid 19 pandemic when the importance of well-equipped and well-located healthcare facilities was underscored. Outpatient care can help reduce the strain on hospitals and generally allows patients to access medical care at lower costs with better experiences than a traditional inpatient setting. The healthcare sector has demonstrated its ability to navigate challenging markets with notable performance across various operating fundamentals, including transaction volumes, occupancy and rental rates. We believe the healthcare sector has a bright future.

Inland Private Capital is a sponsor of The DI Wire, and the article was published as part of their standard directory sponsorship package.

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