Vital Signs December 2023: Healthcare Sector Outlook


Medical Office Buildings: Capital Markets Update

As the availability of liquidity has become limited in the current rate environment, transaction volumes have fallen as was outlined in last year’s Vital Signs. With fewer properties trading, there were relatively few data points of activity for most of the year. However, we finally saw a major merger of two substantial entities. Physicians Realty Trust (aka DOC REIT) and Healthpeak Properties announced their partnership in an all stock merger in Q4 2023. The combined entity is expected to total $21B in value and result in a 52 msf portfolio composed primarily of 40 msf of outpatient properties across the Sunbelt markets of Dallas, Houston, Nashville, Phoenix and Denver. The deal is expected to close in Q1 2024. Removing this merger and the associated commercial real estate acquisitions, the total sales volume through Q3 2023 was below $2B –an almost 65% drop from Q3 2022. The impact of rising interest rates has had a cooling effect on

transaction volumes over the past year. However, as rate pressures lessen, this situation should prove to be temporary and recoverable. MOB cap rates, which had in recent years compressed at a greater rate than other asset types such as office, reached a 5.5% national median low point in Q1 2022. As of Q3 2023, cap rates have increased to nearly 7.0%. The reason for the rise in cap rates is two-fold; the rising cost of debt and investor’s unwillingness to accept negative leverage has pushed rates upward. Recently, the rise in the 10-year treasury yield has pushed rates further upward. The composition of deals has also begun to shift: more dispositions are occurring from motivated sellers with assets that are either distressed or were unable to achieve attractive financing. As a result, spreads remain historically low for healthcare assets, and fairly in line with expectations for traditional real estate asset classes.

Medical Office Buildings: Transaction Volume by Quarter




















20Q1 20Q2 20Q3 20Q4 21Q1 21Q2 21Q3 21Q4 22Q1 22Q2 22Q3 22Q4 23Q1 23Q2 23Q3 On-Campus Sales Volume ($) Off-Campus Sales Volume ($) On-Campus Avg Price ($/sf) Off-Campus Avg Price ($/sf)

Source: Revista Med, Cushman & Wakefield Research


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