Medical Office Market Overview Steve Stiloski, MAI, CCIM, MRICS Ryan Gieryn, MAI.

2013 Year In ReviewMedical Office Market Overview

Steve Stiloski, MAI, CCIM, MRICSRyan Gieryn, MAI

Investors Prize Medical Office Buildings


• “More than 120 medical office building (MOB) properties valued at $1.8 billion were sold in the first half of 2013.”

• “A total of 171 MOB properties sold during the calendar year 2012 at an average value of $13.2 million, or $161/SF. In comparison, of the 124 MOBs sold so far this year, the average value was $14.8 million, at an average price of $197/SF.”

• “Investors appetite for this asset class of choice remains as strong as it has been since the start of 2012.”

• “During the recession, investors came to realize that the income-producing qualities of this class of real estate are very stable. This is driven principally by the fact that you have physicians and hospitals in long-term leases, and they tend not to move.”

- Healthcare Finance News

September 23, 2013

Investors Prize Medical Office Buildings


• “While certain investors believe surplus demand in the national MOB market is causing an unjustified increase in asset pricing, others believe higher interest rates are keeping metrics in check.”

• “In addition to high demand, falling overall cap rates are contributing to higher prices in this market.”

• “In the third quarter of 2013, the average overall cap rate slipped to 7.77%, the lowest seen since the MOB market debuted in our Survey in midyear 2008.”

• “Survey results indicate that rising values in this market primarily result from falling cap rates rather than growing rental rates.”

- PwC Real Estate Investors Survey

Third Quarter of 2013

Current Medical Office Design Trends


• Larger sized exam rooms is becoming a common trend.

• As the collaborative care model is becoming more prevalent, designers have been locating nurses’ stations and physicians’ offices close to each other (or eliminating private offices all together) to provide shared work areas and more opportunities for communication.

• National healthcare discussions is placing a great emphasis on containing costs, preventative care, wellness, and managing chronic disease. By 2014, approximately 40 million more Americans will have access to health insurance placing more demand of facilities and building infrastructure.

• Flexibility, efficiency, and patient experience are the new operative words in healthcare design today.

- Healthcare Design Magazine

Local Medical Office Market


“Wisconsin welcomed a new investor into the market in the second quarter of 2013. Broadstone Net Lease Inc., a private New York Real Estate Investment Trust (REIT), acquired four medical office properties in Wisconsin from Irgens Partners, LLC. The portfolio sale of six medical office properties, located throughout Wisconsin, Illinois, and Arizona, represented a combined sale price of $46.5 million. The leased properties within the portfolio were to market-dominant hospital systems with attractive credit ratings. Each lease is NNN with modest annual rent increases and remaining lease terms in excess of ten years.”

-Cushman & Wakefield Milwaukee Office MarketBeat

Second Quarter of 2013

Notable Local MOB Transactions


21700 Intertech DriveBrookfield, WI

Sale Date: June 2013

Sale Price: $8,435,000

Net Rentable Square Footage: 20,689

Sale Price/SF: $404.16

Site Size: 2.85 Acres

Year Built: 2008

Capitalization Rate: 6.74%



2315 East Moreland DriveWaukesha, WI


Sale Price: $12,350,000




Year Built: 1980 (renovated in 2009)




4475 South 108th StreetGreenfield, WI






Year Built: 2011




13800 West North AvenueBrookfield, WI

Sale Date: September 2013





Year Built: 1989 (renovated in 2007)


Current MOB Listings


3610 Michelle Whitmer DriveNew Berlin, WI

List Price: $5,700,000


List Price/SF: $223.84


Year Built: 2005


Occupancy: 86%

Current MOB Listings


350 South Waukegan RoadDeerfield, IL

List Price: $7,350,000


List Price/SF: $223.84


Year Built: 2013


Occupancy: 100%

Local MOB Rental Information


What’s Next for the Medical Office Market


• As the baby boomers retire, the over 65 age bracket will grow by 36% and that age cohort traditionally consumes three times the medical services of younger people.

• Under the Patient Protection and Affordable Care Act, signed into law in 2010, 32 million additional Americans will have health insurance. This represents an 11% increase by 2019. Job creation among healthcare practitioners will likewise mirror this expanded patient base.

• A new model of healthcare health systems are embracing is also creating demand. Health providers are migrating to a hub and spoke model which hinges around outpatient care. By acquiring and constructing medical facilities like advanced imaging centers, physician offices, and satellite emergency departments, health systems can strategically coordinate a network of support to cater to the needs of their community.

What’s Next for the Medical Office Market


• These and other factors will increase the demand for medical office buildings by 19% by 2019. There is need for an estimated 64 million square feet of additional MOB space in the coming decade.

• Heightened demand for modern and more efficient outpatient medical office space is generating an uptick in both ground-up development and renovation of existing buildings. Many health care providers are repurposing vacant retail space in malls and shopping centers.

• Medical office brokers have reported a recent increase in RFPs for health-care real estate projects as vacancies in higher four and five star medical office space has fallen from about 11.5% in late 2009 to 10.5% as of third quarter 2013, and more than 8.23 million square feet of new medical office space is under construction.

Presented By:


Steve Stiloski, MAI, CCIM, MRICS

Commercial Property Consultants

[email protected]

262.677.9092

Medical Office Market Overview Steve Stiloski, MAI, CCIM, MRICS Ryan Gieryn, MAI.

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