Medical Office Space: The 20-Year Catalyst

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I first wrote this article in early 2014… and felt it necessary to share it once again. For those looking to strengthen their portfolios with commercial real estate, one of the hottest areas continues to be medical office space. Enjoy…

I remember the day well -- October 15, 2007. The day it all changed.

That was the day the very first baby boomer – Kathleen Casey-Kirschling – filed for social security benefits … with another 80 million baby boomers waiting patiently behind her.

Baby boomers would begin retiring by the thousands shortly thereafter, clearing out their retirement accounts, spending billions of disposable income dollars just to keep their bodies going another 30-plus years.

"We face a tsunami of spending due primarily to the retirement of the baby boom generation and rising health care costs," said David Walker, comptroller general of the Government Accountability Office, as quoted by Fox News. "We're going to have tens of thousands of baby boomers retiring every week over the next decade or so.”

And because this group expects to have longer, more active lives, they’ll spend heavily – at any cost – to keep their bodies in tip-top shape.

Retailers, marketers, doctors, gym equipment companies and hair experts alike have already picked up on this very trend, as 80 million baby boomers spend whatever it takes to keep their bodies up to par. Medical office space is under heavy demand, too, as technologies change, as we see an increase in healthcare jobs and as we move towards more outpatient centers.

Bullish sentiment is tough to ignore in the medical commercial real estate space.

  • “The goal of ‘Obamacare’ is to lower the price of healthcare, so the efficiency of medical office space is going to have to increase to provide the same amount of care with less cost,” said Garth Hogan, executive managing director of global healthcare services for Newmark Grubb Knight Frank, as quoted by Commercial Property Executive. “You’re going to see a need for large amounts of square footage leased by large groups and hospitals; they’re going to see more patients than they’ve ever seen before and see them quicker.”
  • Along with Obamacare, the aging population is increasing the demand for medical office buildings. In fact, according to Bloomberg, sales of such properties hit $6.67 billion in 2013. That’s the “second-highest total in 13 years.”
  • “People over the age of 60 visit a doctor’s office twice as often as does the general population and are prescribed four times the number of prescription medications,” notes commercial real estate services firm, Cassidy Turley. “Investors are clearly savvy to these trends. While sales volume for nearly all CRE product types is still hovering at 2004 levels, sales of medical office buildings posted a record high in 2012.”
  • “It’s a really competitive space,” said Steve Sikes, manager of real assets at the Alaska Retirement Management Board, as quoted by Bloomberg, which is considering buying $150 million to $200 million of medical offices in what would be its first direct purchases of the properties. “Hopefully there are enough of these out there for everyone.”
  • As 32 million Americans pick up health insurance, “The demand for medical office buildings will increase by 19 percent by 2019,” according to the Urban Land Institute. “The need for an estimated 64 million square feet of additional MOB [medical office building] space in the coming decade dwarfs the 6.3 million square feet that will deliver this year.”

Remember, tens of thousands of baby boomers will retire by the week for more than a decade. It’ll create demand for real estate like we’ve never seen before. It’s an unbeatable trend many can’t afford to ignore.