Real Estate Forum - October 2009

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 short-term challenge.

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 Milwaukee area.

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-