The investment appetite for medical office products has increased further over the course of the cycle. This is because some investors view the doctor's office as a good late cycle game. The asset class has stood the test of time in the last recession, and with demand growing – thanks to a changing healthcare industry and an aging population – savvy investors are building up exposure to medical offices before the next recession hits. JLL Income Property Trust is part of the group that is strategically purchasing medical office assets, including the recent acquisition of Genesee Plaza in San Diego for $ 90 million.
"We are deliberately trying to take less risk and look for defensive sectors in the late cycle and the medical office has undoubtedly proven to be appropriate." Allan Swaringen, President and CEO of JLL Income Property Trust, told GlobeSt.com. “During the global financial crisis, medical practice values held up better than virtually any other asset class, in large part due to a more conservative development cycle – there are less speculative developments and more customization options in this property category – and to the stronger and more stable income generation from these assets. "
Not much has changed in history since the recession. In fact, the doctor's office was one of the strongest performers in this cycle. “Over the past 10 years, our return data has shown that non-leveraged medical office income returns have outperformed both the traditional office and broad sector indexes by about 100 basis points, 6.1% versus 6.1%. 5.2% and 5.1%, respectively, ”says Swaringen.
In fact, the doctor's office has proven to be profitable for investors not only during and after the recession. JLL has tracked the performance of the asset classes over the past 20 years and the market has seen steady employment growth. "Over the past 20 years we have found that health care employment growth averaged 2.9% per year and remained positive every year, even in 2002-2003 and 2009-2010 when national employment declined," says Swaringen .
The doctor's office's strong history coupled with today's demand drivers has made this an attractive buy, especially at this stage of the cycle. "In addition to the defensive nature of the asset class at this point in the cycle, we believe that the double tailwinds of an aging population and the ongoing trend towards providing healthcare outside of hospitals will continue to deliver strong investment performance." adds Swaringen. “Therefore, medical office real estate plays an important role in our short-term acquisition plans. We currently have a national strategy and will seek to uncover opportunities for further investment not just in Southern California but nationwide. "