Physician Groups Taking Advantage of Present Medical Office Market

Although most experts remain optimistic about the medical office market, some MOBs in certain marketplaces are feeling the effect of declining demand. This has been advantageous to healthcare providers who have been able to negotiate tremendous rental and medical office condo deals. Landlords have been very aggressive and creative in this market. Some of the recent deals we have structured for physician groups, ambulatory surgical centers and diagnostic centers have been consummated at bargain prices.

Healthcare providers who are looking to relocate or expand their offices are in an excellent position to make deals which will not be available six months from now. We are now working with many groups who realize this and are moving forward.

Healthcare is clearly resistant to economic downturns because of the certainty of people getting sick. However, in recent months there has been a cutback in discretionary healthcare spending, including elective surgeries. The increase in unemployment and subsequent decrease in medical dollars spent have caused some physicians and hospitals to pull back on expansion plans.

There is, in the short term, some slowdown in the medical office market. This is a result of the positive projection of demand in this sector which has led to over-building in some markets. As a result, the MOB vacancy rate has increased. This rate however, is still considerably less than the vacancy rate of non-medical office space. The MOB market is weathering the recession better than other asset classes. Although leasing activity has slowed, tenant demand is steady, unlike the broader office sector.

The MOB market is still fairly stable, but has a far more positive outlook than other commercial real estate sectors. Jobs in this sector outpaced other employment sectors during the downturn earlier in the decade, and they are once again surpassing overall employment growth in the current recession.

Three major trends in the MOB market will continue to contribute to its growth: (1) the aging baby boomers, (2) a continuing shift to out-patient care and (3) prospects for an increase in demand in healthcare services if healthcare reform adds more Americans to the insured. The number of patients who will to be treated in non-emergency room situations will grow significantly as a result of greater healthcare coverage.

The Obama administration’s healthcare reform is expected to increase the growth of the medical office sector. Demand for off–campus medical facilities is projected to increase with more uninsured and underinsured Americans gaining access to medical services. More procedures which were previously done on hospital campuses are now performed off campus in urgent care centers and ambulatory surgical facilities. That is will have a major impact on medical office space. New facilities will open to house these types of uses.

There continues to be a steady rise in population of Americans aged 55 and older. People in this age bracket will demand more healthcare services than the general population.

The end result of any kind of reform should significantly increase the demand for medical services.

Healthcare providers are waiting to see how the potential effect of government intervention in the healthcare will affect the medical real estate market Experts find a silver lining in universal healthcare, asserting that healthcare reform legislation will steer millions of uninsured or under-insured people into the healthcare system, helping spark demand for both doctors and medical space. Demand would accelerate as medical reform is phased in over several years. An example is Massachusetts, which adopted healthcare reform in 2006. Although higher demand has been met with a shortage of providers, the Massachusetts universal care program has so far been a boom to the state’s MOB sector. Over the last 3 years, developers have added 1.8 million square feet of new medical offices.