Page 2B—
COLORADO REAL ESTATE JOURNAL
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March 2-March 15, 2016
C
olliers’ analysis of the
health care industry
and its effect on
commercial real estate in the
U.S. points to a soaring health
care landscape with expected
increases in investment and
further “retailization.” Colorado
follows this national trend
presenting a strong performance
in 2015.
Along the Front Range,
medical office vacancy is
8.6 percent and absorption
remains positive. In some areas
vacancy is lower, which makes it
challenging for practices in need
of expansion to find medical
office space. Vacancy rate in
Midtown is 0.3 percent; North
Denver is 4.2 percent; and Fort
Collins/Loveland is 4.9 percent.
Leasing rates increased 7.4
percent over the last four years
averaging $22.81 per square foot
in 2015.
This downward trajectory
of available lease space will
continue in 2016 as the health
care industry experiences growth
in both employment and the
65-years-and-older demographic.
Douglas County has the
sharpest increase in health care
employment and is projected
to have the highest 65-plus
population increase over the
next 10 years.
Strong performance of
medical office sales continued in
2015. Sales volume reached over
$290 million as capital continued
to flow into the sector and drive
cap rates down to 7.16 percent.
The strong investor appetite is
driven by higher yields compared
with other asset classes, low
interest rates and a stable tenant
base with strong credit. Health
care inherently is driven by
demand for patient care. The
constant nature of this demand
renders the health care sector
attractive to investors.
The solid fundamentals of
this asset class, combined with
the projected growth in aging
population, are attracting
investors not accustomed to
investing in medical office
buildings. We expect strong
demand to continue into 2016,
virtually unaffected by the
interest rate increase.
In Colorado and the U.S.,
these trends are driven by:
1. More patients having
insurance coverage under the
Affordable Care Act.
2. More “consumer-friendly”
outpatient clinics, such as urgent
care centers and retail clinics.
3. Mergers and acquisitions.
Expanded Health
Insurance Coverage
In 2015, 140,327 Colorado
consumers enrolled or were
automatically re-enrolled in
affordable health insurance
coverage through the
Marketplace. We expect health
care costs will continue to rise as
ACA members are actively using
the coverage in which they are
paying.
Based on these factors, as
well as growth projections, it
is estimated that health care
spending will nearly double in
the U.S. over the next 10 years
– from $3 trillion in 2014 to a
projected $5.5 trillion in 2024.
Consumer-Friendly Clinics
The retail sector is expected
to benefit as medical clinics,
urgent care centers and other
outpatient facilities lease space in
vacant retail spaces in shopping
centers. These properties offer
favorable lease terms, great
visibility and convenient locations
to patients.
Additionally, improving the
patient experience is the focus
of health care construction,
according to a survey conducted
by Health Facilities Management
and the American Society for
Healthcare Engineering of the
American Hospital Association.
The survey polled a random
sample of 3,125 hospital and
health system executives to study
trends in hospital construction.
More than 86 percent of survey
respondents said that patient
satisfaction is “very important”
in driving design changes to
health facilities or services.
Approximately 63 percent of
respondents said now they
include patients and community
members in the design process.
The Advisory Board says
consumers want it all – short
drive times and ancillaries at
every site, provider continuity and
24/7 availability. The millennial
generation is driving this desire,
as they are accustomed to
on-demand convenience.
Merger and Acquisitions
As hospitals and health care
systems are under pressure to
reduce costs while increasing
the quality of care, there has
been a wave of merger and
acquisition activity that is
expected to continue into 2016.
These hospitals and health
care systems are seeking to
improve efficiencies, reduce
duplicate facilities and gain
greater negotiating leverage with
insurance companies.
As mergers bring together
hospitals and physician practices
into large, financially solid health
care systems, they aggregate
significant real estate portfolios.
The full implications of this
merger and acquisition activity on
real estate demand have yet to be
fully realized.
Technology Transformation
Technology transformation
possibly could decrease demand
for medical office space. In a
study performed by InMedica, it
was predicted that the number
of patients with chronic illnesses
who are remotely monitored will
increase from 308,000 in 2012
to approximately 1.8 million by
2017.
Remote monitoring can be
effective in preventing highly
expensive hospitalizations,
re-admissions after discharge
and emergency department
visits through proactive early
identification and response
to symptoms of a worsening
condition. All of this reduces the
need for direct patient care and
thus the need for medical real
estate.
The impacts of ACA,
“retailization,” mergers and
acquisitions, technological
advances and financial
uncertainty will have an effect on
health care real estate in the years
to come.
Cheryle Powell
Health care services, Colliers
International, Denver
Charts courtesy CoStar and Research Colliers International Denver
