As the elderly population increases and the trend towards outpatient care continues over the next several decades medical office buildings (“MOBs”) will be in consistent demand across the country. However in Florida, where new construction will outpace absorption in the near term, the operating environment for MOBs will probably decline over the next twelve months.

This growth in the elderly population is expected to increase demand for cardiologists, gerontologists and neurologists. Also, continued use of imaging technology will increase demand for radiologists. It has been reported that population growth in the 55+ age segment alone will necessitate an additional 25 million square feet of medical office space by 2014. According to a recent National Ambulatory Medical Care Survey, each person visits his/her physician 3.16 times per year on average; and in the 65+ population, the average nearly doubles to 6.15 times per year. As the 65+ population grows, we will see an increasing demand for physician care and MOB space.

What is the impact of Healthcare reform on MOBs? Several scenarios have been explored using different assumptions. The estimates range from 14 million square feet to 62 million square feet in addition to the aforementioned 25 million and on top of the current supply of 552 million square feet.

The shift to outpatient care positively impacts the MOB market. Outpatient facilities represented 78% of all surgical procedures in the US during the first decade of the 21st century vs. only 20% during the 1980’s. Patients prefer the convenience and payers prefer the lower cost of outpatient facilities which are often located in MOBs. This shift towards outpatient care is further strengthened by Medicare increasing the number of ambulatory and outpatient procedures that are eligible for reimbursement.

Healthcare employment is probably the best indicator of demand for facility utilization, managing a landlord’s expectations of lease rates and the time necessary to lease up new buildings. Since the start of the recession in December of 2007, employment in the healthcare sector has increased by almost 600,000 jobs while total unemployment has increased by 8.2 million.

Finally, operating expenses should probably increase 2-3% over the next twelve months based on historical and projected MOB inflation.

As has been stated elsewhere, while no property type is recession proof, MOBs have proven to be recession resistant.