According to Scott Peters, chairman and CEO of Healthcare Trust of America, the fundamentals of the medical office sector remains solid in the long-term future for MOB outpatient demand looks strong. On the firm’s Q3 call, he said that the overall tailwinds influencing the MOB sector continues.
“The demand for healthcare services continue to increase as the ’18 population turns 65 at a projected rate of 10,000 individuals per day for the next 15 to 20 years. To focus on quality of life and life longevity has never been greater,” he said. “Healthcare systems, physician groups and the medical academic universities continue to move to lower costs and more convenient outpatient locations, primarily well located medical office buildings.”
Development remains in check with limited speculative developments, he explained. “We’re seeing and being involved in specific opportunities to address specific needs with several of our healthcare system relationships. This fundamental performance can be seen in our third quarter results, same-store growth was 2.5%, driven by strong 2.7% rental revenue growth, our highest level of revenue growth in over eight quarters.”
As for leasing metrics, he said that metrics are solid. “Total new leasing totaled over 200,000 square feet with cash releasing spreads accelerating to 3.7%. Tenant retention was healthy at 82%, and TI leasing concession costs are in line with past quarters. Forest Park Dallas is leasing up. We entered into 41,000 square feet of new leases at the campus at rates favorable to our budget. This brings our lease rate to 84% for this campus, and we expect continued leasing in the fourth quarter.”
The yield on the REIT’s 2017 investments of $2.8 billion improved to over 5.3% is on track to achieve 5.5% on lease up of artillery development, he explained. “From an investment and acquisition perspective, the volume of transactions is lower than last year. However, the strong fundamentals we have talked about continued to attract private capital into the sector, keeping cap rates pretty much the same as they happen over the last 12 to 18 month, especially on high quality assets. Our investment strategy is to be patient, disciplined and focused in this environment.”