NEW YORK (TheStreet) -- According to Rosen Consulting Group, the U.S. privately owned medical office market totaled about 478 million square feet in 2011. An estimated 74.2 million square feet, or 15.5%, of that total was owned by publicly traded health care real estate investment trusts.
According to the last comprehensive survey of buildings from the U.S. Energy Information Administration, the total square footage of all outpatient facilities was 1.3 billion in 2003.
With the Affordable Care Act adding around 35 to 45 million insured patients to the marketplace, the utilization of health services should increase. This bodes well for hospitals' and physicians' volume and is a net positive for hospitals and the owners of on-campus medical office buildings.
Although coverage for these additional new patients is expected to be funded in part by Medicare and Medicaid cuts to providers, the increased volume for hospitals and physicians is expected to offset any reimbursement cuts.
Medical Offices Should Become Most Favored Asset Sector in 2013Medical office buildings (typically classified as either on-campus, for facilities located on or connected to a hospital campus, and off-campus, for facilities outside of the hospital campus) have increased in popularity because many leases are long in duration and are triple net, meaning the tenant is responsible for taxes, insurance, and common area maintenance fees. The triple net feature allows for a more predictable cash flow stream because the building owner is not burdened with having to pay for the variable costs. Often a triple net lease will contain contractual annual rent escalations, providing the REIT with steady cash flow growth over time. Also, physicians are increasingly attracted to medical office space on or very near hospital campuses in order to leverage hospital services and increase traffic to their practices. Additionally, some physicians are affiliated with hospital systems and require proximity to their campuses. A limited amount of medical office supply in these areas drives strength in related medical office market fundamentals and significant investment opportunities. Hospital systems have been facing limitations on expansion and as a result, more procedures are being performed in outpatient facilities, which have lower overhead costs than hospital space. Insurance companies and government health care programs also have been formulating their reimbursement policies in order to direct patients to less costly outpatient care, as opposed to expensive inpatient procedures, driving increased outpatient surgeries and physicians' office visits.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV