Page 13 - The MarchLife Story

Absorption: While absorption has slowed since the highs of 2008, it has remained positive in 2015; totaling 5.8 million square feet through the third quarter of 2015 alone. As employment growth in the hospital and healthcare systems continues, absorption should remain positive into 2017. A strong industry tailwind coupled with acute regional demand suggests MarchLife will further outperform the robust national market.
Sales: At the end of the third quarter of 2015, the rolling 12 month sales volume ($12.9 billion) hit a new peak, which has contributed to downward pressure on cap rates. After three quarters of 2015, the rolling 12 month cap rate stood at 7.2% and continues the downward trend seen since yields hovered over 8.0% in 2010. Availability of capital combined with low interest rates, an aging demographic and the effects of the National insurance have been heating up the demand and competition for medical of ce properties.
Financial Health: U.S. health expenditures topped $3 trillion in 2014 for the first time on record and are projected to grow by another 5.3% in 2015. A combination of millions of newly insured people and an aging population have led to a strong growth in healthcare spending that is expected to continue at a strong pace.
The positive trends in vacancy rates, asking rents and cap rates point to a continued healthy performance of the MOB sector through 2017-18. In a push to lower costs, healthcare providers are shifting care away from hospitals to outpatient facilities, further increasing demand. Investor appetite should remain robust as strong valuations and availability of capital will continue to drive activity. Demographic trends pointing to increasing demand for medical services and the credit-worthiness of hospital tenants will add to the positive long-term view of this asset class. Pursuits of mergers and acquisitions will remain strong as hospital systems continue to seek growth of market share and changes under National insurance lead physicians to be employed by hospital systems rather than remain independent.
Healthcare facilities will have to adapt to the rapid changes in technology. Hospitals, ambulatory centers and MOBs are becoming fully digitally integrated. Therefore, existing facilities will have to be renovated and new buildings will need exible designs to keep up with future technology. The need for these new and newly renovated structures will continue as we move forward and technology advances.
As the cost and importance of healthcare across the country has increased, healthcare is becoming its own speci c asset class, alongside commercial, industrial, and residential. As such, the investment community is focused on healthcare speci c growth assets that are required over the coming years to meet the signi cant demand.
Medical Of ce Cap Rates By Region 2016
6.5%
WEST MID-ATLANTIC
7.0%
NORTH-EAST SOUTH-WEST
7.5%
8.0%
SOUTH-EAST MID-WESTW
Medical Of ce Sales Volume Billion
$15 $10 $5
$02006 2007 2008 2009 2010 2011 2012 2013 2014 2015 MOB Sales Volumes (left-axis)
Note: All data are 12 month trailing
Healthcare Spending as a Percentage of GDP 20.0%
17.4% 18.5%
2010 2020
15.0% 10.0%
5.0% 5.0%
0.0%
8.9% 6.9%
12.1%
1990
13.3%
2000
1960
1970
1980
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