Healthcare Midwest

Avison Young: Investors still sweet on medical office buildings

Avison Young: Investors still sweet on medical office buildings,ph01

Medical office buildings remain a favored target for investors eager to sink their dollars into commercial real estate. Avison Young, in its mid-year medical office update, reported that investors purchased 160 medical office buidings in the United States during the first half of the year.

Those purchases accounted for 6.48 million square feet, according to Avison Young’s research.

The busiest markets in the United States were New York City, with $549 million worth of medical office building investment; Chicago, with $337 million; Houston, $276 million; Atlanta, $177 million; and Milwaukee, $156 million.

The medical office market might have been even busier during the first six months of 2018 if there was more supply. Avison Young reports that the supply of high-quality medical assets is limited in many markets across the United States, thanks mostly to the significant amount of activity in this sector during the last several years.

“We are seeing more and more physician groups, both large and small, looking to monetize their assets to manage long-term strategy and capitalize on the market environment for leased assets,” said Mike Wilson, an Avison Young principal and a leader of the firm’s national healthcare capital markets group based in Chicago. “Investors are focused on this sector as it provides a stable, lasting investment opportunity.”

The value of medical office buildings continues to rise, too. Real Capital Analytics reported that the price of medical office properties averaged $288 a square foot in the 12-month period from the first quarter of 2017 through the first quarter of 2018. That’s a jump of 13.8 percent from the previous 12-month period.

Who’s buying these properties? Increasingly, REITs are making an impact in this sector. During the past 24 months, three of the top four buyers were REITs. These buyers accounted for 226 acquisitions totaling $5.64 billion.

Both Chicago and Milwaukee are benefitting from the interest among investors in medical properties, with Chicago on pace to beat the $472 million that investors spent on area medical office buildings in 2017. The !56 million spent so far in Milwaukee is just shy of the $163 million spent in all of 2017. Both years represent a large jump from the $16 million spent in 2016.

Some notable medical sales in the first half of 2018 include the DuPage Medical Office Portfolio in Chicago, a 439,000-square-foot, eight-building portfolio that was bought by Harrison Street Real Estate Capital for $240 million in June of 2018. The buildings were located in the Chicago suburbs of Naperville, Lisle and other west and southwest communities.

in Milwaukee, a 124,562-square-foot medical office building at 2801 Kinnickinnic River Parkway sold for $54 million as part of a larger portfolio.