National Medical Office Building Research Report
National Report, First Half 2018
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Tax Reform Raises Healthcare Market Ambiguity;
Intact Affordable Care Act Keeps Investors Optimistic

Strong demographics keep demand strong despite continued uncertainty. The new tax law passed in December 2017 will remove a critical piece of the Affordable Care Act (ACA), the individual mandate, but the impact on healthcare coverage will be smaller than originally anticipated, according to current Congressional Budget Office (CBO) estimates. While some decline in coverage rates could impact medical office demand as patient visits fall due to fewer covered individuals, especially for preventative care, many other demand factors remain in place. An aging population, the federal government subsidizing premiums for those with low to moderate income, and other key pieces of the original legislation remain intact. While uncertainty over future changes to the healthcare law will likely remain for an extended period, consolidation and expansion in the industry continues signaling confidence among providers in the segment.

Vacancy tumbles again this year. Medical office property operations are sound, with overall vacancy falling for an eighth consecutive year during 2017 and average rent continuing to rise at a steady but moderate pace. These trends will persist in 2018 as medical office deliveries remain below the 10-year average and consistent demand pushes vacancy to the lowest level since mid-2006. Rent growth will continue to trek along at a modest pace as large groups dominate leasing activity.