Cushman & Wakefield’s Annual Vital Signs Report Tracks Growing Medical Office Demand

Driven by an aging American population and improving technology, the continues to grow even more rapidly than the overall economy, and medical office developers and investors are aggressively working to meet the subsequent demand, Cushman & Wakefield’s Vital Signs: Healthcare Investor and Developer Survey report finds.

For the 2018 survey, Cushman & Wakefield surveyed a cross-section of healthcare developers and investors on their preferences related to geography and property type, in addition to project outcomes such as cap rates and development yields. The respondents included private equity, institutional owners, and REITs, along with developers specializing in the healthcare sector. Some operate locally and regionally, while others have a national footprint.


“With continuing pressure on providers to hold down costs, it is likely that more healthcare delivery will move out of the hospital and into other locations, from outpatient locations to doctors’ offices and to the home,” said Lorie Damon, Managing Director and Americas leader of Cushman & Wakefield’s Healthcare Advisory Group. “We anticipate greater demand for ambulatory and outpatient facilities relative to hospitals or other types of inpatient facilities.”

Matt Heidelbaugh, Executive Managing Director for Tenant Advisory Services at Cushman & Wakefield’s Dallas office, said Texas’ growing population is helping to drive medical office demand across the local market.

“As our population boom continues in Texas, the demand for infrastructure, housing, utilities, and natural resources will only continue to increase,” he said. “The critical need for more healthcare services is a significant part of that growth and development. Already, REITs and developers all over the state are challenged to keep up with the pace of demand in all medical-related industries.”

Mike Gosslee, Senior Director at Cushman & Wakefield in Dallas, said his clients’ demand for medical office space in Texas is ranging from leases to build-to-suit-to-own.

“One side wants the added flexibility of leasing, while another recognizes the long-term financial benefits of building to own and occupy,” he said. “I expect this trend to continue based on the specific, perceived need of each medical organization.”

Driving Forces in Healthcare

At the end of 2017, the number of people in the U.S. aged 65 or older topped 50 million for the first time, and this age group now comprises a record 15.6% of the population. Similarly, the number of people in the U.S. over 85 is also at a record high, 6.5 million or 2.0% of the population.

Naturally, an aging population corresponds with growth in healthcare employment, with more than 16 million healthcare jobs now part of the U.S. economy as of June 2018, and more than 300,000 healthcare jobs added year-over-year. With the number of people 65 and over projected to grow by 10 million and top 65 million by 2025, health care employment will need to increase by more than 4 million jobs just to keep pace.

Employment in the healthcare sector continues to evolve as well. In 1990 hospitals dominated healthcare jobs, accounting for 43% of all healthcare employment. Today they are still the largest share, but hospitals only account for 32% of health care jobs. The biggest growth in health care employment has been in home health care, which accounts for 9% of healthcare jobs (up from 3.5% in 1990) and outpatient care, which has gone from 3.5% to 5.7%.

Key Survey Findings

Despite record-setting cap rates for most portfolios and strong competition for most acquisitions, the healthcare industry continues to attract new real estate investors, and the majority of Vital Signs’ survey respondents stated they expected to grow their healthcare portfolios through development and/or acquisition.

Developers signaled continued optimism for this sector and see strong returns for their efforts. Most reported development yields on stabilized, on-campus assets with a credit-anchor tenant ranging from 5% to 7% on the low end, to 6% to 8% on the high end. For off-campus assets without a credit-anchor tenant, yields on stabilized developments ranged from 6% to 8% on the low end, to 7% to 9% on the high end.

Nearly 90% of survey respondents indicated that the bulk of their development projects are occurring off campus, reflecting a growing trend among health systems to expand ambulatory footprints and bring care closer to patients.

2018-11-12T14:23:37-05:00November 12th, 2018|In the News, Press Release|