Health Systems Drive Medical Leasing Activity

Health Systems Drive Overall Medical Leasing Activity as Physicians Leave Private Practice for Hospital Employment

There are many trends in the healthcare real estate industry; one of the more significant ones is the growing number of U.S. doctors that are leaving private practice for hospital employment. Recent changes in healthcare due to the Patient Protection and Affordable Care Act (ACA) has forced many independent physicians to opt for hospital employment due to the financial pressures of running a private practice.

The number of independent physicians has declined over the last several years, from 57 percent in 2000 to 49 percent in 2005 and 37% in 2013 according to a recent report from global management consulting firm, Accenture.  The 2016 Survey of  American Physicians by The Physicians Foundation indicated only 32.7 of U.S. Physicians identified themselves as independent practice owners or partners.

Medical Office Building

The Impact on the Medical Office Leasing Market

Hospital systems are aggressively recruiting physicians and as they sign on new independent physicians it is driving leasing activity particularly in suburban markets.

Often when doctors opt for hospital employment, their current space is vacated and they are relocated to system owned or leased property. As a result, the bulk of the medical office leasing activity we have seen over the last 24 months is coming from the larger health systems and increasingly less from independent physicians.

Typical MOB Leases are Getting Bigger

Prior to the ACA, a typical medical office lease transaction was in the 2,500-3,500 square feet range. However, the typical lease size from health system is trending larger in the 4,500-9,000 square foot range, depending on the number of physicians practicing at a particular location. In addition, we are increasingly seeing hospital systems establish multi-specialty hubs with lease commitments in the 30,000 to 100,000 square foot range for submarkets in which the systems doesn’t own or control an “on campus” MOB.

The impact for medical office building developers as the push to the suburbs continues is that they will be underwriting new developments with a higher proportion of hospital system credit and lease up programs will require fewer transactions.

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