The COVID-19 pandemic era and the rise of remote work has caused turbulence to wash over the office real estate segment, but one subsector has become an increasingly safe haven in the uneven environment: medical offices.
Medical offices haven’t been immune to the broad sales volume declines seen across the office sector, but they have been shielded from many of the market factors that have rocked offices since 2020. Medical office buildings have been “remarkably consistent from year to year” of late, according to Yardi Matrix. Between 2017 and 2022, the average sale of a property that is primarily for medical office use has hovered between $260 and $290 per square foot. Through the first half of this year, the average was $296, or nearly $100 per square foot higher than the average for all office buildings.
Some facilities have garnered much more due to amenities, location or both. For example, New Haven Hospital spent $723 per square foot for the Park Street Building in New Haven, Connecticut, while health care REIT Welltower paid $483 per square foot for space in Washington, D.C.
And medical office construction across the country has likewise weathered the pandemic-related storm. From 2018 to 2021, there was 7 million to 8 million square feet of new medical office space started each year, with 8.7 million square feet started last year.
Yardi expects medical office demand to maintain an upward trajectory in the years ahead. For one thing, the U.S. population is aging, with the U.S. Census Bureau projecting there will be more people 65 and older than those under 18. New technologies and treatments have also made it possible for medical procedures that previously required hospital stays to be moved to outpatient facilities, making non-hospital medical space a more viable investment. The growth in the popularity of telehealth is a minor downside pressure, but such services thus far appear more complementary to in-person care than a complete replacement.