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Page 6 — Health Care Properties Quarterly — October 2017
Market Update
D enver’s medical office
building market remains
an attractive niche with
solid fundamentals in the
first half of 2017 due to
strong demand for quality space
and favorable demographic trends,
according to a recent report on the
metro area’s medical office market.
CBRE’s report on the first half of
2017 noted that Denver’s overall
vacancy rate decreased to 9.4 per-
cent, down 96 basis points year
over year.
The decline in vacancy rate is
mirrored in the overall U.S. medi-
cal office vacancy rate, which was
8 percent, according to CBRE’s look
at the national medical office mar-
ket. The decline is seen from the
growth in the aging U.S. population,
pressure for health care providers
to cut costs and new technologies
boosting demand for medical office
properties in recent years.
“The steep increase in the 65-plus
population and anticipated greater
need for in-office physician servic-
es by this group signals a continued
increase in demand for health care
services and medical office space
in the years ahead,” said Andrea
Cross, Americas head of office
research, CBRE.
Within the Denver medical office
market, a positive net absorption of
41,091 square feet was recorded in
the second quarter, bringing year-
to-date absorption to 137,063 sf – a
41.6 percent increase compared
with second-half 2016.
CBRE noted that off-campus
medical buildings have gained in
popularity, posting positive net
absorption in the last two quarters.
The growth in off-campus MOBs
is partially due to lower rent and
future ownership opportunities.
Overall availability remains stable
in recent quarters, ending the sec-
ond quarter at 12.2 percent, with
off-campus availability at 13.4 per-
cent and on-campus availability at
10 percent.
The report noted that the aver-
age direct asking lease rate was
$28.04 per sf full service gross at
the end of the second quarter – a
2.7 percent uptick year over year.
The off-campus average direct leas-
ing rate rose to $27.22 per sf, up 87
cents per sf year over year while
the on-campus average rate stood
at $29.03 per sf. For comparison,
the average direct asking lease rate
for general office space in metro
Denver was $26.15 per sf FSG.
The Denver MOB market contin-
ues to experience strong levels of
construction activity, according to
the report, with 226,600 sf under
construction at the end of the sec-
ond quarter. Construction costs are
increasing due to the rising cost
of materials and a labor shortage,
however, are still lower than many
parts of the United States.
Investors also remain interested
in the Denver medical office mar-
ket, reflected in “robust” invest-
ment activity during the first half
of 2017. There has been $72.8 mil-
lion in transaction volume year to
date, up 87.6 percent from first-half
2016.
“As investor appetite for health
care-related real estate has grown,
medical office buildings have
emerged as the most popular type
within the sector,” Chris Bodnar,
executive vice president, Health-
care, CBRE Capital Markets, said
of the overall U.S. medical office
market. “As yields for traditional
real estate asset classes have
compressed in recent years, new
capital sources, including foreign
capital, have entered the medical
office sector in search of stability to
hedge against any potential correc-
tion in the global markets.”▲