MOB’s Low Vacancies, Longer Leases Boost Investor Appeal

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Vacancies? What vacancies? As medical offices go, the idea of unleased space is practically a foreign concept.

Thanks to an aging population that requires more care and the need for medical office visits when a patient is ill or has a chronic disease, medical offices remain in demand. As a result, in the first quarter of 2023, the national medical office vacancy rate was only 9.2% — just under half the 17.5% vacancy rate for traditional offices.

“From 2019 through the first quarter of 2023, vacancy in medical office properties has only risen 50 basis points nationally,” Marcus & Millichap reported in June.

The future outlook also seems healthy as the number of senior citizens increases and the amount of new medical office space being built remains limited. As of June, less than 12 million SF – or 1% of current inventory — was slated for 2023 delivery.

The report acknowledges, however, that availability depends on location-specific factors, such as resident demographics, existing local stock and metro-level construction pipelines.

Vacancy rates are especially low in warm weather markets which are experiencing an influx of retirees escaping cold-weather climates like Chicago or New York. The report cites a 190 basis-point drop in medical vacancy in the Dallas-Fort Worth area from 2019 to March 2023 “coinciding with a 17% surge in the metro’s age 65-plus cohort.” There was a similar pattern in other areas where the senior population grew more than 15%, such as West Palm Beach, San Antonio and Phoenix. Each saw vacancy falling by more than 200 basis points in the same period.

The strength of the medical office market is being bolstered by the entry of large retail chains such as Walmart Health. Walgreens has expanded into primary, specialty and urgent care following its $8.9 billion acquisition of Summit Health, while Amazon snapped up One Medical’s virtual, in-office and lab services. Other retailers entering the market could also boost demand for medical office space.

Post-Covid, medical office space has maintained an average sale price of just under $300 per SF. However, the report notes, dealmaking has slowed since the Fed began to raise interest rates. Uncertainty in the banking sector, which supplied over 75% of medical office financing in 2022, could also tighten lending.

On the other hand, medical office leases are generally signed for longer periods, reducing erratic swings, and healthcare is often non-discretionary. These factors, as well as telehealth and fewer labor challenges “could boost investor confidence in the long-term growth potential of the sector,” the report states.

 

Source: GlobeSt.

Florida-Based Primary Care Provider Expands Into Fort Worth With Two Acquisitions

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Florida-based Palm Medical Centers is expanding into Texas with the acquisition of two longstanding primary care practices in Fort Worth.

Through the deal, Texas Family Medicine, located at 6100 Harris Pkwy, and Fort Worth Primary Care, located at 800 8th Avenue Suite 626, will shift to the Palm Primary Care Texas brand. The clinics are expected to change names in September.

Terms of the transaction were not disclosed.

“I’m honored to be able to bring the Palm model to my hometown physicians of Fort Worth, where I’ve spent over 20 years of my career advocating for Medicare beneficiaries and partnering with local physicians,” Fowad Choudhry, CEO of Palm Medical Centers, said in a prepared statement.

Founded by Dr. Brian Byrd, Texas Family Medicine has been serving residents in Southwest Fort Worth since 2001. Fort Worth Primary Care is owned and led by Dr. Morvarid Rezaie, who has spent 15 years in the Fort Worth Medical District.

Combined, the two clinics offer four primary care physicians and four advanced practice providers on staff.

“The aging population in North Texas continues to increase at a blazingly rapid pace, and there is a need for additional high-quality physicians to provide our patients with a genuinely personalized patient experience,” Byrd said. “Fowad has been a friend to physicians in Fort Worth for over 20 years. I am pleased to work with him again to bring other independent doctors together to help improve patient experience throughout our community.”

Palm Medical Centers will also establish its Texas corporate office in Fort Worth as it expands into the state.

“While a location for the office has not been solidified, the provider is looking into Central Fort Worth,” said Dana Tarrant, VP of Operations for Palm’s Texas Market.

Founded in 2013, Palm Medical Centers offers primary care services through 32 locations across Florida. The provider plans to expand further across North Texas with openings scheduled through 2024.

 

Source: Dallas Business Journal

Five Reasons For Physicians To Invest In Medical Office Buildings

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Medical office buildings are becoming increasingly attractive to investors and real estate managers due to their stability and upside potential.

Here are five reasons why medical office buildings could be a good investment for physicians, according to a June 5 report from Benzinga and CityVest, a real estate investment platform.

  1. The healthcare industry is resilient through changing economic cycles. The need for healthcare and treatment of patients will always exist and is not subject to market downturns.
  2. There is a trend toward treating patients in medical office buildings and outpatient settings over hospital settings. Medical office buildings often have high occupancy rates and long-term leases.
  3. Medical office building tenants typically stay in one place for a long period of time, so they are willing to accept leases with renewal clauses and steady rent increases. Medical office building tenants have high expenses associated with moving, so retention rates are good.
  4. Medical office buildings draw in a diverse tenant base, with many different specialists that maintain a steady income.
  5. Over 4 million Americans will turn 65 this year, and baby boomers will start needing more medical care. Demand for medical offices will continue as people need more medical care.

 

Source: Becker’s ASC Review