Colliers International announces results of 2015 Medical Office Outlook Report

Colliers InternationalFeb 18 2015

Colliers International today announced the results of its 2015 Medical Office Outlook Report, which points to the trend of "retailization" of healthcare as a key driver behind increased demand for healthcare real estate. The report shows that in spite of uncertainty about the full impact of the Affordable Care Act (ACA), the medical office market has proven to be a more stable property type for tenants and investors during the recession and the recovery. Rents remain stable with tenant demand on the rise and the average vacancy rate is at its lowest level since the recession.

"The healthcare industry is going through an enormous transition period due to the ACA, advances in technology and the graying of our population," said Mary Beth Kuzmanovich, recently appointed as National Director, Healthcare Services for Colliers International. "In the face of this, the demand for healthcare real estate is rising, especially for the properties that are best suited to meet sector-wide needs for lower-cost and more convenient locations."

The 2015 Medical Office Outlook Report covers the retailization of healthcare—a response to consumer demand for convenient, flexible healthcare services—which is causing providers to seek technology-friendly locations in ground-floor and second-floor urban retail spaces, mixed-use residential buildings and suburban shopping centers. Meanwhile, outdated medical office buildings not well-suited to patient convenience or provider technology needs are experiencing higher vacancy rates. This trend is also mirrored in the investment market, with the highest-quality assets being the most heavily pursued by investors.

Additional key findings from the report include:

• Medical office vacancy rates have dipped below 11 percent nationally and continue to decline, though older buildings have higher vacancies
• Absorption continues to increase, with the highest demand for well-located, flexible spaces capable of handling rapid changes in technology
• Both new supply and the amount of space under construction have been trending down since the recession and remained low in the first half of 2014
• Rents have remained stable
• The investment climate is very strong
• Capitalization rates continue to compress, though there is a wide spread between cap rates for investment-grade and below-investment-grade properties