RU² / February 14, 2014
Medical Office Upswing
With the Affordable Care Act (ACA) in place and functioning an increased demand for medical services is starting to be realized. As a result medical office vacancy has slipped below 10 percent for the first time in five years and it’s expected to continue to fall further through 2014. Asking rents are up as well especially in the large metro areas and in newer generation buildings.
On the sales front there is far more capital chasing deals than there are assets to buy. With demand so high and interest remaining compressed cap rates are at or near all-time lows 5.75% – 8.75%. Again newer generation buildings in large metro areas are selling on the low end of that range and older off campus buildings in secondary and tertiary markets are selling on the high end of that range. The sheer volume of transactions has increased each of the past three years and is expected to continue that trend in 2014 provided there is enough product coming on the market. As long as interest rates remain at or near current levels cap rates are expected to remain at current levels given the increased demand by both private and institutional buyers.
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