As the U.S. economy slows to a 2% growth rate (2018 growth rate was 3.5%), most sectors are following suit. As consumer retail spending continues to dip, and the overall economic outlook remains uncertain, the ripple will be felt throughout most of the economy. There continues to be a handful of exceptions and health care real estate is among them.
Last month, Colliers International released its annual health care report. The report highlighted the following findings that point to optimism for MOBs (Medical Office Buildings)
- Vacancy rates remain low (8.2%) despite 20.9 million square feet of medical office space being delivered in 2018
- 2018 lease rates increased by a dramatic 3.6% and are expected to remain strong in 2019
- Although investment volume declined slightly in 2018, this was due to a limited amount of MOB investment opportunities
The reports also indicated that health care systems are expanding their reach with off-campus locations, further strengthening demand for strategically located MOBs.
Although the outlook is strong, we believe that our conservative underwriting for MOB investments takes into account economic uncertainty as a whole. According to the Colliers report, cap rates for the western region are hovering around 6.2%. As a hedge against a downturn, Recentric Realty Capital targets cap rates at 8% +, creating a safety barrier for our investors. These types of deals are difficult to find, but we have a handful of new possibilities that meet this criteria.
Recentric Realty Capital remains very optimistic about the 2019 forecast. With two off campus MOBs, and our aggressive acquisition and development activity, we are poised to take advantage of the opportunity health care real estate provides this year and into the future.