Vital Signs December 2023: Healthcare Sector Outlook

Medical Office Avg Cap Rates and Spreads

700

7.0%

600

6.5%

500

6.0%

400

5.5%

300

5.0%

200

4.5%

100

4.0%

0

3.5%

Spread - Office (RHS)

Spread - MOB (RHS)

MOB Cap Rate (LHS)

Source: Revista Med, FRED St Louis, Cushman & Wakefield Research, RCA

In the last two years, private equity companies have continued to be more active than other institutional buyers. The exceptions to this are the two major REIT mergers of 2022-2023, which executed a multi-billion-dollar deals. Excluding these REIT mergers, over 70% of deals conducted this year were purchased by private equity players. This involvement is likely to grow, and beyond

just healthcare real estate, with cost pressures on healthcare systems potentially limiting their ability to acquire physician practices at their historical pace. As dry powder for investment builds on the sidelines, awaiting changes in market conditions, the strong fundamentals of the space point to healthcare as one of the areas to rapidly regain transaction activity when rate issues subside.

As of Q3 2023, cap rates have increased to 6.8%, with spreads against the 10-yr Treasury falling to 220 bps.

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