U.S. Economic and Medical Office Market Overview … Marcus & Millichap Research Services, CoStar...

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2014 U.S. Economic and Medical Office Market Overview and Outlook November, 2014

Transcript of U.S. Economic and Medical Office Market Overview … Marcus & Millichap Research Services, CoStar...

2014U.S. Economic and Medical Office Market

Overview and Outlook

November, 2014

Economic & DemographicOverview

-10%

-5%

0%

5%

10%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

*

GDP Health Care Expenditures

Annu

aliz

ed Q

uart

erly

Per

cent

Cha

nge

* Through 3QSources: Marcus & Millichap Research Services, BEA

U.S. GDP Growth and Health Care Spending Trends

Quarterly Employment SteadyFull Recovery of Jobs Lost in Recession

-2.7

-1.8

-0.9

0.0

0.9

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

*

Qua

rter

ly J

ob G

row

th (M

illio

ns)

* Through 3Q** Through October 2014Sources: Marcus & Millichap Research Services, BLS

+8.2 Million +10.0 Million**

-8.7 Million

Year-to-Date Job Growth**: 2.3 Million

-6%

-3%

0%

3%

6%

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

201320

14*

Total Employment Healthcare

Total Employment Growth vs. Healthcare Employment Growth

Y-O

-Y P

erce

nt C

hang

e

* Through OctoberSources: Marcus & Millichap Research Services, BLS

Job Growth Since 2010 Trough*Health Care: +1,557,000

Total Employment: +10,025,000

U.S. Employment Gains Have Been BroadY-O-Y Sector Change Through October 2014

Sources: Marcus & Millichap Research Services, BLS

U.S. Employment Sectors Absolute Change % Change

Prof. & Business Services 657,000 3.5%Trade, Transport & Utilities 532,000 2.0%Leisure & Hospitality 380,000 2.6%Health Services 348,000 1.9%Construction 231,000 3.9%Manufacturing 170,000 1.4%Financial Activities 85,000 1.1%Educational Services 80,000 2.4%Government 60,000 0.3%Natural Resources & Mining 47,000 5.3%Other Services 43,000 0.8%Information 10,000 0.4%

Net Change 2,643,000 1.9%

Sources: Marcus & Millichap Research Services, BLS

65+ Age Cohort Growth DrivingHealthcare Spending

0

25

50

75

100

1990

1995

2000

2005

201020

15*20

20*20

25*20

30*20

35*20

40*

65+

Year

Old

Pop

ulat

ion

(Mil.

)

* ForecastSources: Marcus & Millichap Research Services, U.S. Census Bureau, BLS

67%

Total Growth 2010-2040*: 42.5 Million

Total Growth 2014-2018*:8.1 Million

$841

$2,094

$2,762

$3,411

$4,048

$4,769

$0 $1,500 $3,000 $4,500 $6,000

< 25 years

25-34

35-44

45-54

55-64

65+

Average Annual Per Capita Spending

U.S. Population 65+ Years Old Average Annual Per Capita Spending

65+ 5-Year Total Healthcare Expenditure

Growth:$5.8 Billion

Number of Insured in United States

200

220

240

260

280

2014* 2015* 2016* 2017* 2018* 2019* 2020* 2021* 2022* 2023* 2024*

Without ACA After ACA

Num

ber o

f Ins

ured

(Mil.

)

* ForecastSources: Marcus & Millichap Research Services, Congressional Budget Office

67%

Economic & DemographicOverview

Changing Medical Sector Industry Consolidation

50

60

70

80

90

04 05 06 07 08 09 10 11 12 13

Medical School Enrollment

Sources: Marcus & Millichap Research Services, Association of American Medical Colleges

Num

ber o

f Enr

olle

es (0

00s)

0.6

0.7

0.8

0.9

1.0

2008 2010 2012 2014* 2016* 2018* 2020* 2022* 2024*

Physician Supply Physician Demand

Demand For Physicians Exceeds Supply

Num

ber o

f Phy

sici

ans

(Mill

ions

)

Sources: Marcus & Millichap Research Services, AAMC Workforce Studies

2020: Shortage of 91,500 Physicians

8% 3% 3% 3% 3% 3%

28%27% 25% 23% 23% 23%

35%35%

32% 32% 28% 31%

20%24%

30% 29%32% 30%

9% 11% 11% 13% 14% 13%

0%

25%

50%

75%

100%

2007 2008 2009 2010 2011 2012

65+

55-64

45-54

35-44

Under 35

Age Distribution of Office-Based Physicians

Perc

ent o

f Tot

al

Sources: Marcus & Millichap Research Services, CDC

Sources: Marcus & Millichap Research Services, American Medical Association, AMN Healthcare

Physician Ownership of Practice Declines as Industry Consolidates

Private Practice: 61% Private

Practice: 53%

2007/2008 2012

Percent of Total Physician Recruitment by Hospitals:

2004: 11%2013: 64%

0

100

200

300

400

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Total Number of Hospitals Acquired

Sources: Marcus & Millichap Research Services, Levin Associates

Tota

l Num

ber o

f Acq

uisi

tions

1.0

1.5

2.0

2.5

3.0

2012

2013

2014

*20

15*

Tota

l Num

ber o

f Ret

ail C

linic

s (0

00s)

* ForecastSources: Marcus & Millichap Research Services, Accenture, CDC

1,418

Number of Retail Clinics Growing Rapidly

1,743

2,243

2,868

Retail Clinics Will Fulfill 10.8 Million Visits in 2015

Usual Place of Health Care

Doctor’s Office: 75%

Clinic: 21%Hospital: 3%

Other: 1%

Changing Medical Sector Industry Consolidation

Medical Office Property PerformanceOverview and Outlook

0

8

16

24

32

08 09 10 11 12 13 14* 15*8%

9%

10%

11%

12%Completions Vacancy

Com

plet

ions

(Mil.

of S

qFt.) Average Vacancy R

ate

Medical Office Supply and Demand Trends

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

National Medical Office Rank by Metro3Q 2014 Vacancy Rate

Top 10Metros

3Q 2014Vacancy

Y-O-Y BpsChange

San Fancisco 2.2% -110

Boston 4.8% -10

San Jose 5.2% -40

Columbus 6.4% -150

Portland 6.6% -40

Seattle 6.8% -20

Milwaukee 7.0% -30

Denver 7.2% -100

Miami 7.2% -140

Minneapolis 7.3% -30

U.S. Average 9.7% -10

Bottom 10Metros

3Q 2014Vacancy

Y-O-Y BpsChange

Phoenix 19.8% -70

Las Vegas 18.5% -320

Northern NJ 16.6% -10

Detroit 16.0% 140

San Antonio 14.6% 90

Palm Beach 14.4% -20

Chicago 13.3% -150

Atlanta 12.9% -120

Dallas-Ft. Worth 12.6% 20

Cincinnati 12.3% -40

U.S. Average 9.7% -10

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

-2

0

2

4

6

2009

1Q

2009

3Q

2010

1Q

2010

3Q

2011

1Q

2011

3Q

2012

1Q

2012

3Q

2013

1Q

2013

3Q

2014

1Q

2014

3Q

Pre-2009 2009+

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

Medical Office Net Absorption by VintageDemand Concentrated Among Newer Properties

Net

Abs

orpt

ion

(Mil.

of S

qFt.)

U.S. Medical Office Rent Growth Trends

-8%

-4%

0%

4%

8%

2008

2009

2010

2011

2012

2013

2014

*

Medical Office Total Office

* Through 3Q Sources: Marcus & Millichap Research Services, CoStar Group, Inc.

Y-O

-Y P

erce

nt C

hang

e

Medical Office Property PerformanceOverview and Outlook

Medical Office Investment Trends

0

200

400

600

800

06 07 08 09 10 11 12 13 14*

U.S. Medical Office Investment TrendsTransaction Activity

* Trailing 12-months through 3QIncludes sales $1 million and greaterSources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics

Num

ber o

f Dea

ls

6.9%

7.7%9.9%

8.8%

9.2%9.1%

9.4%

9.6%10.1%

Percent of TotalOffice Transactions

10% 12% 12% 11%

48% 44%54%

41%

21%34%

18% 41%

12%2%

2%

9% 9%14%

7%

0%

25%

50%

75%

100%

2011 2012 2013 2014*

Institutional

Foreign

Public Listed/REITs

Private

User/Other

U.S. Medical Office Buyer Composition

Perc

ent o

f Tot

al D

olla

r Vol

ume

* YTD through October 29Excludes entity-level transactionsIncludes sales $2.5 million and greaterSources: Marcus & Millichap Research Services, Real Capital Analytics

$120

$145

$170

$195

$220

2007

2008

2009

2010

2011

2012

2013

2014

*

5%

6%

7%

8%

9%Average Price Cap Rates

* Preliminary estimate through 3QIncludes sales $1 million and greaterSources: Marcus & Millichap Research Services, Real Capital Analytics, CoStar Group, Inc.

U.S. Medical OfficePrice and Cap Rate Trends

Aver

age

Pric

e pe

r Sq.

Ft.

Average Cap R

ate

0%

4%

8%

12%

16%

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1991

1992

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1994

1995

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1997

1998

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2000

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2004

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2006

2007

2008

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2010

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201320

14*

Medical Office Cap Rate 10-Year Treasury Rate

Medical Office Cap Rate Trends Average Cap Rates vs. 10-Year Treasury

* Through November 5Includes sales $1,000,000 and greaterSources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics

Aver

age

Rat

e

10-Yr Treasury Long-Term Avg.

150 bps 560 bps

590 bps

500 bps 510 bps300 bps

440 bps

610 bps

Cap Rate Long-Term Avg.

Medical Office Investment Trends

Questions?

2014U.S. Economic and Medical Office Market

Overview and Outlook

November, 2014