has been some erosion in tenancy. But overall, the
assets are 90% occupied. “Our renewal rate is in
excess of 90% this year, so we feel we’re doing a
good job of keeping our tenants,” he reports.
BremnerDuke’s Taylor concurs that his company has experienced minimal vacancy. “Physicians
typically sign longer leases, so that enables you to
weather the volatility in the market,” he says, adding, “New developments, however, are sometimes
slower to lease up than in the past.”
Time and again, healthcare has proven itself to
be somewhat recession-proof—at least, compared
with other types of real estate. Availability in the
medical office sector, for instance, pales in comparison to that of the general office market, which
is hovering around 17%, notes Pontius. And
whereas the downturn is largely to blame for
vacancy in office space, he suggests the healthcare
class is suffering from some over-eager development earlier in the cycle.
“Vacancies are, to a degree, rising from new
construction getting ahead of the market, particularly at a time when the economy is causing some level of disruption,” Pontius says. Still, he anticipates the oversupply will be a
Developers have been ramping up deliveries in the past five
years, in response to what seemed like boundless demand.
Completions peaked last year at more than 17 million square feet,
according to Marcus & Millichap, which expects to see another
In late May, Healthcare Trust of America completed the sale-leaseback of the Wisconsin
Medical Office Building Portfolio 2, comprised of two medical office facilities, in the Greater
10. 1 million square feet hit the market by the close of 2009. That’s
a revision of 30% from the firm’s initial forecast of 14. 1 million
square feet, made at midyear.
Besides lagging demand, constrained capital has placed the
brakes on a number of developments.
Experts note that during the recent building boom, hospitals
relied on the bond markets and auction-rate securities to fund
many of their developments. Before the credit crunch, it was pos-
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