• Retirement centers including, skilled nursing facili-
ties, assisted living facilities, and independent living
In all, that’s approximately 22 percent of the real estate pie.
And guess what my fellow SIORs…the members of the
healthcare community are looking for people like you to assist
them in their real estate decisions. Yes the time has come where
the torch has been passed. Location of facilities is no longer a
personal decision; decisions are based on solid demographics
and a strategic market assessment. Hospitals are finally looking
at the real estate community to manage those decisions.
Other key factors affecting health care real estate decisions
Demographic shifts: Population migration away from the
urban core will continue to attract new opportunities for
health care providers in suburban locations. Health care
providers will seek practice locations that will attract affluent, well-insured individuals.
The convenience factor: Patients want an environment
that is service-oriented in every respect. Parking must be
readily accessible, patient wait times must be minimal, and
service capabilities should be comprehensive.
on any individual practitioner. Already today, fewer physician specialists are dependent on the hospital environment
for growing their practice.
Bright Outlook for Medical Office Buildings
Medical office building (MOB) cap rates are in the 7 percent to
8 percent. Indeed, when I met recently with the head of Harvard
Real Estate in the Boston area, I found the rates to be even lower.
They are generally 100 to 200 basis points better than other
investment properties. Due to MOBs’ declining risk, REITs are
expected to increase momentum in the investment market. The
capital vs operating lease upcoming mandates will only enhance
The outlook for growth in MOB products are significant.
Physicians are treating their practices like retail businesses,
desiring to locate close to several hospitals and thriving residential areas. However, due to the high-tech amenities of MOBs,
pre-leasing must be high. MOBs are an attractive market
because vacancy rates are low—typically 5 percent to 10 percent—leases are generally 60 percent longer than other tenants’,
and renewal rates are in the 90 percent range—higher than average. The strong demand and high-end supply growth is expected
to continue over the next 10 years.
Accommodating new technology: Clinical excellence
and convenience shouldn’t be mutually exclusive. As technology becomes more affordable, physicians will seek to
make it a part of their practice, whether mandated by the
government or not. Technology must enhance physician
productivity and increase practice capacity. This increase
in efficiency usually produces a requirement for additional
Changing structure of medical practice: Growth of medical practice through mergers will continue to support the
increased cost of infrastructure and create opportunities for
better financial performance. Larger medical practices will
seek market-branding opportunities to avoid dependence
Hospitals and Medical Office Buildings Embrace New
Probably the most famous description of the impact of build-
ings on people came not from an architect or a researcher study-
ing workplace performance, but from a politician. It was British
Prime Minister Winston Churchill, who said: “First we shape
our buildings; thereafter, they shape us.”
No segment of the facilities market has taken that observa-
tion more to heart than health care facilities. Today, the concept
of evidence-based design is drawing interest because it moves
beyond the general idea that the physical environment affects
occupants: It seeks to gauge the impact of specific designs on
productivity, employee and patient morale, and patient outcome.
When most of us think about the future of medicine, architecture and real estate are not the first things that come to mind.
We think of advances in medical research and technology—better imaging techniques, robotic surgery,
and genetic engineering (from which miracles are
now expected). But in fact, hospitals and medical
office buildings are experiencing important positive
changes in architecture and design.
Don’t touch that dial…we are moving to some new
uncharted areas. This ain’t a cycle it’s a paradigm