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Thought Leaders: NKF Global Healthcare Services Fall 2018 U.S. Healthcare Market Update

Market volatility and declines not affecting healthcare real estate and M&A

Even with constant changing forces disrupting the healthcare industry, the medical office investment market and mergers and acquisitions activity continue to have a significant impact. In this report, healthcare real estate industry leaders Global Healthcare Services showcase the current U.S. healthcare real estate market, with special insight on how the Northeast market compares.

MEDICAL OFFICE INVESTMENT MARKET

U.S. SALES VOLUME & PRICING

During 2017, medical office properties across the nation valued at $13.3 billion changed ownership, well above the $10.8 billion in 2016. 2018 has seen a decline in national sales volume with year over year total sales down by 17% (164 properties) and volume in terms of dollars down by -18% ($1.8 billion).

Pricing hit an all-time high in 2017, with an average price of $295/SF, an increase of 16%over 2016’s average price of $255/SF. Over the past 5 years, medical office assets have grown an average of 7% each year, with an overall increase of 55% since the recent lowest point in 2009.

2018 has seen the price per square foot of assets moving up since 2017, currently averaging $299 psf. Cap rates hit an all-time low at 6.66% in 2017, finishing below 2016 cap rates of 6.74%. Cap rates have compressed at a rate of 22 basis points per year over the past five years. Given the increasing 10-year treasury rates in 2018, the days of cap rate growth are likely over, though cap rates have remained relatively stable in a rising interest rate environment; both 2017 and 2018 hovered around 6.6% for the same time period year over year. Likely, as further treasury rates increase, we will see cap rates beginning to move back toward 2016 levels.

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