Job Growth by Major Industry

The health sector is projected to continue to grow between 2012 and 2022, adding more than 4.2 million jobs during that time. Much of that growth is projected in offices of health practitioners and home health care. Health sector employment is expected to comprise a larger share of total U.S. employment by 2022 than it has in the past. By 2022, that proportion is projected to increase to more than one in nine jobs (11 percent), and 80 percent of employment in the U.S. will be in service sectors

Sources: Marcus & Millichap Research Services, Bureau of Labor Statistics

The healthcare sector is projected to add over 4.2 million jobs between 2010 and 2020, with 63 percent of those in ambulatory settings. Registered nurses, health aids, and personal care aides are among the occupations nationally projected to have the largest job growth during that time period, adding more than 2 million jobs and with another 700,000 job openings due to vacancies from attrition.

Sources: Marcus & Millichap Research Services, The Center for Health Workforce Studies

Between 2000 and 2010, employment in the health section nationally has grown substantially while total employment declined by more than 2 percent. The overall economy lost over 3 million jobs while jobs in healthcare increased by more than 2.8 million. Jobs in ambulatory care increased by more than 1.6 million during that time, including 720,000 in offices of health practitioners and nearly 450,000 in home care. Hospitals added almost 780,000 jobs and nursing homes added 400,000 jobs during the same period.

Sources: Marcus & Millichap Research Services, Bureau of Labor Statistics

Healthcare currently represents 18 percent of U.S. GDP and is expected to increase to nearly 20 percent of GDP by 2022. The Healthcare industry currently represents one of the largest segments of the U.S. GDP, and as the population continues to age, and as the healthcare industry continues to expand, the demand for healthcare assets will grow simultaneously.

Sources: Marcus & Millichap Research Services, The World Bank, Centers for Medicare and Medicaid Services

The Affordable Care Act was signed into law in March of 2010 with the goal of giving millions of uninsured Americans access to health insurance coverage. Since then, about 16.4 million uninsured individuals have gained access to health coverage and that number estimated to grow to 25 million in 2025.

 

Sources: Marcus & Millichap Research Services, Congressional Budget Office

In 2011, the first of the “Baby Boomers” began reaching the retirement age of 65. The Boomers make up a significant portion of the U.S. population, and, as they age, the percentage of Americans over 65 – those that predominately seek medical assistance – will grow simultaneously. When the last of the Boomers reach retirement age, almost 20 percent of the entire U.S. population will be 65 or older, compared to less than 13 percent today. In order to accommodate this growth, new healthcare facilities will need to be created to help service these individuals.

 

Sources: Marcus & Millichap Research Services, BLS

As Boomers continue to age, the number of multiple chronic conditions is expected to grow from almost 8.6 million today (about one of every 10 Boomers) to almost 37 million in 2030 (about six of every 10 Boomers). With a population continuing to grow larger and older, and with chronic health conditions becoming more prevalent, it can be inferred that number of individuals visiting healthcare facilities will grow simultaneously.

 

Sources: Marcus & Millichap Research Services, CDC/NCHS

Nationwide, asking rents for available medical office space remains essentially stable at $22 per square foot in the first quarter, up roughly one percent from a year earlier. In fact, over the past seven years, the national rental average has not fluctuated dramatically. The growing involvement of hospitals and health systems in lease negotiations likely will inhibit rent growth, as major providers have both scale and credit working in their favor.

*Estimate
Based on available space only
Sources: Marcus & Millichap Research Services, CoStar Group Inc., Real Capital

Despite the recent recession, the healthcare real estate sector has proven to be more stable and recession resistant than other commercial real estate sectors. Even through the depths of the recent recession, medical office buildings experienced high occupancy in excess of 90 percent while traditional office space occupancy has historically been much lower. Demand for healthcare services and aging population are two contributed factors for the ever growing demand for healthcare real estate.

 

Sources: Marcus & Millichap Research Services

U.S. medical office vacancy dipped 20 basis points to 9.7 percent over the past 12 months ending in March. The average, however, is inflated by outsized availability in the Phoenix and Las Vegas markets where the economy is still recovering from the housing bust during the recession.

 

*Estimate
Sources: Marcus & Millichap Research Services, CoStar Group, Inc.

An estimated 8.8 million square feet of medical office space is currently targeted for delivery for 2015. Last year, 7.1 million square feet was completed. Evolution of the health care sector, including a shift to a more patient-centric care delivery model, continues to encourage off-campus expansion. The push into communities has given way to the development of ambulatory surgery centers, stand-alone emergency departments, and large multi-tenant properties housing physician offices.

*Estimate **Forecast
Sources: Marcus & Millichap Research Services, CoStar Group, Inc.

The increased patient volume and influx of interest, and capital in the healthcare sector has created growing opportunities for healthcare real estate development across the nation. There are opportunities present on hospital campus and adjacent to hospital campus, as well as in suburban locations. A key driver for development is getting services out of the hospitals and into an outpatient setting where it’s easier for patients to visit and keeps the hospital open for people who need immediate medical attention.

 

Regional shares based on estimated U.S. total of 8.8 million square feet
Sources: Marcus & Millichap Research Services, CoStar Group, Inc.

Mergers between hospitals and physician groups are creating a variety of situations for medical office building investors. Investors with forward-looking strategies should consider repositioning their leases ahead of any acquisition or merger to optimize their asset value.

 

*Preliminary
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital

The healthy performance and steady cash flows of medical office buildings have made them a much sought after property type by a collection of prospective buyers including institutional investors and real estate investment trusts. Medical office buildings are also perceived as somewhat recession-resistant since demand for medical care is strong in both good and bad economic times.

 

*Preliminary
Based on Transactions of $2.5 M+ (excludes entity-level and partial interest sales)
Sources: Marcus & Millichap Research Services, Real Capital Analytics