Development

Healthcare Providers Look to Real Estate to Maximize Revenues, by Marcus & Millichap

File Type: Free Content, Article
Release Date: June 2013
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Dreyer Medical Clinic

While public policy and demographics point to a surge in healthcare demand over the next 10 years, ever-increasing operational costs and prospects for a sizable physician shortage are forcing providers to identify and exploit opportunities to create efficiencies and maximize revenues. Many large practices and health systems have started to look to real estate for help in meeting these objectives, according to Marcus & Millichap’s Medical Office Research Report for the first half of 2013.

Although few healthcare providers will pay premiums for space in buildings with opulent lobbies or other upscale finishes, a growing share of medical office tenants may find that above-average rents at newer properties are more than offset by potential savings or revenue generation associated with modern building features, according to the report. This type of analysis should become more prevalent as health systems, which are best positioned to track such metrics, account for a growing share of all medical office leasing decisions.

From an investment perspective, health system mergers and acquisitions stand to elevate the overall credit characteristics of the nation’s medical office sector, resulting in additional high-quality acquisition opportunities, and potentially more favorable financing terms. While a shrinking tenant pool, along with ongoing pressure on reimbursements, may act as headwinds to rent growth in coming years, the lower-risk profile associated with hospital-grade tenants should counterbalance any impact on property prices and cap rates, reported Marcus & Millichap.