After a tumultuous year or so, commercial real estate (CRE) experts are reviewing the data and determining the immediate future of the industry. As we all learned first-hand last year, nothing is certain, but we can begin making a few short-term predictions.
Three healthcare real estate markets in particular have made their way into article headlines in the last couple of months: SoCal, Houston, and Phoenix. That’s not to say other healthcare markets are any less exciting, but since these markets have caught our attention, it’s worth sharing the updates.
SoCal Healthcare Market Update
As of March 2021, industry leaders are beginning to see a promising recovery of the healthcare sector in Southern California. BisNow cites Mike Conn, Meridian’s Senior Vice President of Development and Construction, as saying it seems a rebound is on the way for healthcare real estate investments. Before 2020, healthcare facilities in LA County experienced significant increases in investment volume. And, while 2020 wasn’t a record-breaking year, the investment volume was still about $425M.
Much like the other CRE sectors, healthcare offices experienced an increase in vacancies in 2020. However, during the last quarter of 2020, vacancy rates have been less than 11%. That is about 5% lower than other sectors within the same area. And the greater LA area ranked third within the top 10 metros in the nation for asking rents.
Houston Market Update
Another BisNow article explains that construction is picking up in the Houston healthcare market. Actually, “surge” is the word one industry leader used to explain the increased amount of developments. BisNow also cites Judah Auld, Vice President of Preconstruction at McCarthy Building Co., estimating that somewhere between 80% and 90% of Houston projects that were halted within the last year are now back in progress.
Of course, material costs are a concern. Among other commodities, the cost of obtaining steel and lumber is currently quite high. Hospitals are now re-evaluating their projects to determine which ones are still relevant and financially manageable. The pandemic’s impact on the hospital’s financial and operational state is a significant part of the conversation.
Some health entities are also transforming and/or updating their current spaces. Capacity, air quality, and technology use are three of the components they are reviewing in their building adjustments. Overall, the Houston market is handling expansion and managing their strategic growth as the market continues to unfold.
Phoenix Healthcare Market Update
At the end of March, GlobeSt.com released an article regarding the Phoenix market. Steady population growth has been one of the catalysts of Phoenix’s strong healthcare market. Even throughout 2020, this market continued its momentum. During the pandemic, landlords of healthcare offices in Phoenix reportedly collected almost 100% of their rents, and tenants continued to occupy the properties. Now, growing construction costs and low vacancy rates are leading to rent growth. Investors are keeping an eye on this and anticipating the new yields.
Other CRE Updates
As one Forbes article explains, the expanded use of technology across the nation is just one simple example of the changes the commercial real estate industry has experienced within the last year. Other adjustments include post-pandemic building design changes and learning how to plan for the unexpected. And developers are experiencing increased construction projects across the healthcare sector.
While the majority of the updates mentioned above reflect an overview for the SoCal, Houston, and Phoenix markets, HBRE reviews individual markets in extensive detail. HBRE is a national healthcare real estate firm, familiar with a wide variety of markets. Our team handles financial modeling and market comps and often travels to each market to ensure our clients have the best possible guidance throughout their real estate transactions. If medical teams are interested in learning more about a specific sector, they can trust HBRE to thoroughly review their requested market.
If you are interested in learning more about investing in commercial real estate, or if you have questions about buying, selling, or leasing a commercial property, please contact an HBRE advisor. Our team of experienced CRE professionals have the skills and insight to assist with all property transactions. To reach out to us directly, email [email protected] or call 615-564-4133.
