Report Details Obamacare’s Impact On Commercial Real Estate

Posted by Orb Staff on October 03, 2012 No Comments
Categories : Commercial Mortgage

12512_medical Report Details Obamacare's Impact On Commercial Real Estate While the debate over Obamacare generates political rancor, the healthcare reform legislation is having a significant impact on the medical office space sector in the commercial real estate industry, according to a new report released by Marcus & Millichap.

‘Owners of better-quality, performing medical office properties should enjoy stable returns over an extended period, as tenants tend to make significant investments in improvements and on-site equipment, discouraging relocations,’ says the report.

Approximately 4.6 million square feet of medical office space was delivered in the first half of this year, according to the report, with another 4.4 million slated for completion over the remainder of the year. Although new supply will exceed last year's total, it is below the 2007-2009 period when medical office inventory grew by nearly 60 million square feet.

Marcus & Millichap notes that the medical profession's manner of adapting to the healthcare reform law will impact how office space is used.

‘While demographic and economic trends will undoubtedly boost space demand in the years ahead, the strength of the correlation remains unclear,’ the report states. ‘To start, adoption of electronic records will reduce in-office file storage, while tele-health systems curb office visits and extended hours allow for greater capacity sans additional space.

‘In addition,’ the report continues, ‘a growing share of doctors will work directly for hospitals and health systems. Some systems will favor multipurpose ambulatory care centers over traditional multi-tenant properties, while others will look to well-located shopping centers for expansion into communities. The proliferation of in-store clinics will continue and could accelerate if a major retailer such as Walmart enters the game, and more vacant retail properties, such as a 300,000-square foot mall in Massachusetts, will be repositioned for medical use.’

The report also cites data that estimates one-third of today's doctors are expected to retire in the coming decade. As a result, the report forecasts that while ‘smaller, aging properties will be most negatively affected by this trend, physician attrition may also alter space needs and desired floor plans in newer assets, as large practices and health systems utilize more physician assistants and nurse practitioners to fill gaps.’

The report adds that commercial real estate lenders focused on this sector should be able to ‘continue to cap leverage on construction loans well below pre-recession levels, in addition to requiring strong pre-leasing prior to funding. Without speculative development, much of the new space demand will be forced into existing properties.

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