Healthcare Real Estate: Looking Beyond The Indicators

I don't know who is reading this blog in India, but thank you very much! If you've got investors in Pune who in interested in property over here, give me a call.

Healthcare Real Estate: Looking Beyond The Indicators is such a good article that I am posted some of it here. It was published 10 days ago by Wayne Grohl for The Source blog.

With only a few exceptions, the mood was decidedly up at Thursday’s Healthcare Real Estate Conference in Chicago.  The investors, brokers, tenants, developers and managers who met at the University Club came to hear about strategies and trends in development, management and capital for medical properties ranging from medical office buildings (MOBs) to large healthcare campuses to retail outpatient facilities. 

 Superficially, the first indicator from 2012 was a drop in medical facility construction starts. Usually, when a sector sees a drop in national groundbreaking, it's kind of tough to read the tea leaves as anything other than a negative.

That wasn't the diagnosis at the conference.

On a panel including Shawn Janus of Jones Lang LaSalle's Healthcare practice, the drop in starts was likened to a deception associated with long-term factors finally clearing up. "We saw a decrease due to the capital markets still rebounding, and a SCOTUS ruling on ACA, then an election," said Janus. "With all that behind us we're going to see greater activity. On the acute care side, that has dropped off. Community hospital starts has slowed down. But we're going to see high-acuity activity driven into the outpatient environment. 

On a side note, my colleague Linda agrees with the conference's tone. This field is growing steadily, but now cautiously. She works extensively in healthcare real estate and sold two hospital sites in the last two years. The third, which was to be a community hospital, was indefinitely delayed. 

•  Acute care: more or less means large hospitals.

• High acuity: medical interventions for seriously ill people. Typically conducted on inpatients, that is people who stay over night. But the general trend in medicine and the incentives are to take some higher acuity patients and treat them not in hospitals, but in specialized outpatient settings. One classical example of this trend is the dialysis clinic. There was a time that dialysis for kidney patients was conducted primarily inside a hospital: that has changed in a great many places today.

• Outpatient: a patient not hospitalized overnight.

What he's describing is a trend - several trends, in medical payments, technology and facilities management- that will cause an explosion in non-hospital medical facility utilitization for outpatients. Strip mall spaces, office renovations, all manner of off-campus medical facilities are going to form the demand nationally going forward. Consider it a retailization of medicine.

Read the rest of the article by clicking the link at the top of the page.

A. Joseph Marshall 
Coldwell Banker Commercial
Commercial Real Estate Advisor 
Savannah, Ga 
912-790-6999

Gulfstream leases 70,000SF office building

M2 Communications
 
ENP Newswire - 09 January 2013

SAVANNAH, Ga., - Gulfstream Aerospace has entered a 12-year lease with North Point Real Estate for a 70,000-square-foot office building in the Crossroads Business Park.

The building will house Gulfstream's Information Technology Center of Excellence, supporting the company's worldwide business operations. It will house more than 400 professionals, 100 of whom will be new employees hired over the next several years.

Gulfstream has continued to grow its Savannah facilities since the November 2010 announcement of a seven-year, $500-million Savannah expansion. As part of that expansion, Gulfstream committed to hire an additional 1,000 employees over a seven-year period.

'Within the first two years of that seven-year period, Gulfstream has hired more than 1,695 new full-time employees in Savannah alone, nearly 700 more than what we originally estimated,' said Larry Flynn, president, Gulfstream. 'We've also invested more than $175 million toward our $500 million commitment. 

This brings our total employment in Georgia to 8,580 and demonstrates that Gulfstream is a powerful economic engine for both local and state economies.'

Financial details of the North Point transaction were not disclosed. The Savannah Economic Development Authority (SEDA) played a critical role in securing this site, including site selection, acquisition of additional land and lease support consistent with previous agreements between SEDA and Gulfstream.

[Editorial queries for this story should be sent to newswire@enpublishing.co.uk]

Read the full article at Gulfstream Signs Lease for New Office Building



A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

Has Commercial Real Estate Bottomed?

Has CRE hit the bottom? Is it starting to get better? These are the questions Jeff Reeves tries to answer in his latest article.

The problem with this question is that it leaves off a key component- locality.

I think that broad national stats are reassuring, but essentially worthless. Yes, Reeves is writing for a national audience and I don't fault him that. But CRE, like all real estate, is an inherently local business.

Miami and Washington, D.C. have had a great year. Charleston I am told had a so-so year. The Savannah market was on fire- blazing- all 2012. And as soon as the first dredging shovel hits the bottom of the Savannah River, West Chatham is going to explode with development.

A frequent question similar to the article's title was "When will the other economic shoe drop?" Well, again, where are you expecting a shoe to fall? There was no one humongous shoe, but a million little ones. Each market was affected differently.

Reeves' article uses office as a measure of CRE health- and it is an excellent choice. When companies hire, they need a place to do work, so office vacancy rates are a direct correlation to the health of U.S. employment.

National office vacancy rates could not sink past the 17% mark all year. So things aren't getting worse, they might get better or they could stay the same for a while. Half way through 2012, Savannah's office vacancy rate got just below 20%. Not great having 1 out of 5 offices vacant. But downtown Savannah's vacancy is around 9%.

But in an incredibly risky $30 mil gamble, the Cay Building was built downtown and pre-leased 96% at $35/SF. That's 96% of 71,000SF. Wow.

Would I buy an office building for an investment? Not unless I had a lease agreement in place with a tenant who would lease said building. Otherwise if I wanted to buy office space low and have potential to sell high I'd invest in an office REIT.

Invest smart, not spec. Think local, not general.

Update on 1/16/13. Genesis Capital also weighs in on office markets as a sign of market health.

A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

Office Markets Continue Trudging Along

Originally posted by Posted by justinp in Commercial Property Research on August 12, 2012

Summary: "While six consecutive quarters of positive new absorption provide evidence that the sector has made it through one of the worst contractionary periods of the last three decades, these levels remain incredibly weak by historical standards.  In fact, demand for office space was so weak that even in the face of little new supply—just 1.6 million square feet was completed nationwide in the second quarter—the level of net absorption seen during the quarter was insufficient to generate a decline in the vacancy rate, which remained at 17.2%.  Of course, with such lackluster job growth it should come as no surprise that the sector continued to struggle."

Savannah's office market sees a change between 2012 Q1 and Q2 of -.6% in office rents and change of -10bps in vacancy. Meanwhile inventory has increased 2.5%. These statistics are courtesy of REIS Reports.

The original article is found here: Office Markets Continue Trudging Along

A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

The beat goes on in local office real estate market

Posted: March 4, 2012 - 12:39am  |  Updated: March 4, 2012 - 7:09 By Adam Van Brimmer

Summary: Office vancancy rates are down across all Savannah market areas. Tenants more comfortable signing longer leases than two years.

Key Quotes:
The local absorption rate turned positive across all sub-markets — the downtown business district, West Chatham and Southside — in 2011 for the first time since 2008.

The piecemeal growth is a sign of consistency, however, and insiders say demand is building. They’re calling for positive absorption again this year and a pickup in 2013.

With no new construction expected for the next one to two years, the experts predict a steady decline in vacancy rates and more stability from tenants.

The abundance of space isn’t necessarily a negative for the local market, the commercial real estate agents said. Prices have bottomed, most agree, and a market that boasts a variety of space will benefit during a rebound.

Read the full article at: The beat goes on in local office real estate market.

A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

Need more office buildings? Not likely, U.S. told

Chris Acheson
Monday, Feb. 6th, 2012

Summary: The Building Owners and Managers Association concluded at a meeting last month that the U.S., apart from special markets like New York, Chicago, etc., does not need new office space. This does not mean the office space market is doomed, but will see a demand to retrofit existing spaces.

Key Quotes:

“We don’t need another office building,” says Martha O’Mara, a symposium panelist, lecturer at the Harvard University Graduate School of Design and managing director of Cambridge, Mass.-based commercial property consulting firm Corporate Portfolio Analytics Inc.

“Our traditional idea of an office space and the idea that as the number of office jobs increase, it will lead to an increase in demand for office space, just doesn’t hold any more.” The reason, according to Dr. O’Mara, is that most companies already occupy about 50 per cent more office space than they actually need, while technology has drastically changed the post-war work model.

Read the full article at: Need more office buildings? Not likely, U.S. told

A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

Commercial Real Estate Sectors in U.S. Performing Well in 4Q, Says CBRE Report

Posted by Michael Gerrity 01/10/12 10:43 AM EST

Summary:

• U.S. Office Vacancy Rates Drop to 16% in 4Q, 2011.
• Industrial Availability Continues to Decline; Now 13.5%.
• Retail Availability Holds Steady.
• Apartment vacancy Falls Amid Robust Demand.

Key Quotes:
The office market improved steadily throughout 2011, ending the year with a vacancy rate down 50 bps from year end 2010, at 16%.

Industrial availability ended 2011 at 13.5%, a 80 bps decline from prior year end. With most local markets seeing improved availability in Q4, it appears that modest economic growth is continuing to spur demand for industrial space.

At 13.2%, Q4 2011 retail availability - while unchanged from the previous quarter -- was 20 bps higher than the rate at the end of 2010. However, the stabilization of retail availability during the second half of 2011 marked an end to the relentless increases that characterized the retail real estate market since the recent recession.

Q4 2011 results highlight the continued strengthening of apartment fundamentals, fueled by occupancy gains as more former homeowners elect the rental option. The Q4 2011 vacancy rate of 5.3% was a 70 bps drop from Q4 2010. 

Read the full article at Commercial Real Estate Sectors in U.S. Performing Well in 4Q, Says CBRE Report.

A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga

Growth in Commercial Real Estate Markets Expected in 2012

press release

WASHINGTON, DC, Nov 28, 2011 (MARKETWIRE via COMTEX) 

Summary: Commercial real estate growth was flat in 2011, but economic growth and more jobs signal a stronger 2012.

Key Quotes:

Lawrence Yun, NAR chief economist, said there is little change in most of the commercial market sectors. "Vacancy rates are flat, leasing is soft and concessions continue to make it a tenant's market," he said. "However, with modest economic growth and job creation, the fundamentals for commercial real estate should gradually improve in the coming year."

The commercial real estate market is expected to follow the general economy. "Vacancy rates are expected to trend lower and rents should rise modestly next year. In the multifamily market, which already has the tightest vacancy rates in any commercial sector, apartment rents will be rising at faster rates in most of the country next year. If new multifamily construction doesn't ramp up, rent growth could potentially approach 7 percent over the next two years," Yun said.

Vacancy rates in the office sector are expected to fall from 16.7 percent in the current quarter to 16.1 percent in the fourth quarter of 2012.

Industrial vacancy rates are projected to decline from 12.3 percent in the fourth quarter of this year to 11.7 percent in the fourth quarter of 2012.

Retail vacancy rates are likely to decline from 12.6 percent in the current quarter to 11.8 percent in the fourth quarter of 2012.

The apartment rental market -- multifamily housing -- is expected to see vacancy rates drop from 5.0 percent in the fourth quarter to 4.3 percent in the fourth quarter of 2012; multifamily vacancy rates below 5 percent generally are considered a landlord's market with demand justifying higher rents.

The full article can be read at Growth in Commercial Real Estate Markets Expected in 2012.

A. Joseph Marshall
Coldwell Banker Commercial
Commercial Real Estate Advisor
Savannah, Ga