Aging U.S. population boosts demand for medical office buildings
Real Estate - AUGUST 28, 2017

Aging U.S. population boosts demand for medical office buildings

by Andrea Waitrovich

The aging U.S. population, pressure for healthcare providers to cut costs and new technologies have boosted the demand for medical office properties in recent years, according to a report from CBRE.

The U.S. Census Bureau estimates that the 65+ population will nearly double between 2015 and 2055 to more than 92 million and comprise nearly 23 percent of the country’s total population by that time.

“The steep increase in the 65+ population and anticipated greater need for in-office physician services by this group signals a continued increase in demand for healthcare services and medical office space in the years ahead,” said Andrea Cross, Americas head of office research, CBRE.

The overall U.S. medical office building vacancy rate was 8 percent during the first quarter 2017, down by nearly 300 basis points from the first quarter 2010.

The five markets with the lowest first quarter vacancy rates were Nashville (2.8 percent), New York (3.2 percent), the San Francisco area (4.2 percent), Louisville (4.9 percent) and Kansas City (5.5 percent). Nashville registered the strongest medical job growth and New York, the fifth strongest, over the past five years, contributing to their low availability rates.

Investment in the U.S. medical office sector increased substantially over the past seven years. Total U.S. investment volume in medical office buildings of at least 10,000 square feet rose from just under $4 billion in 2010 to $10.2 billion in 2016. Moreover, total investment in 2016 exceeded the prior annual peak of $7.3 billion in 2006.

Healthcare providers aim to reduce costs due to the uncertain reimbursement rates from both Medicare, Medicaid and private insurance companies, and they aim to improve patient outcomes. Adopting new technologies is one method for improving healthcare outcomes, but “upfront capital required” means that costs must either increase or be trimmed elsewhere.

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