Historical research: Third quarter 2020. This article summarizes H2C’s national Medical Office Building Quarterly Update, published in October 2020. These figures are not Tampa-specific and do not represent current market conditions.

Medical Office Building Market: H2C’s Q3 2020 Update

Hammond Hanlon Camp LLC, known as H2C, reported that medical office building transaction volume declined during the third quarter of 2020 while pricing remained comparatively resilient.

The report covered the second full quarter affected by the COVID-19 pandemic. National transaction volume totaled approximately $1.6 billion, the lowest quarterly level reported since the first quarter of 2014.

Despite lower activity, the reported average medical office cap rate declined by five basis points to 6.55%. Health systems participated as both buyers and sellers, accounting for more than 25% of quarterly transaction volume.

Key Findings

Pricing Held Up Despite Lower Sales Activity

H2C described continued interest from private and institutional investors, even as fewer properties traded. Its analysis pointed to the essential nature of healthcare services, an aging population, and healthcare spending as factors supporting investor demand.

The report characterized medical office properties as a comparatively defensive investment during the pandemic. That was H2C’s assessment of conditions at the time, rather than a guarantee of income, pricing, or investment performance.

Health Systems Were Both Buyers and Sellers

Health systems accounted for a substantial share of third-quarter activity. Some sold medical office properties to raise capital, while others acquired properties they occupied or expected to use for expansion.

H2C identified potential uses of sale proceeds including acquisitions, debt repayment, and additional cash reserves. It also anticipated further health system real estate sales, including sale-leasebacks.

At the same time, the report described acquisitions that allowed health systems to gain control of occupied facilities. These different strategies reflected individual operating needs and capital priorities.

H2C’s Outlook at the Time

H2C expected low interest rates, investor demand, limited supply, and capital availability to support medical office values despite reduced transaction activity.

The report also noted that first-half 2020 transaction volume was only 1.48% below the first half of 2019, supported by an active first quarter. H2C viewed that result as a reason activity could recover as pandemic uncertainty eased.

These statements describe the report’s historical outlook. They should not be read as current financing conditions, current cap rates, or a forecast for today’s market.

What This Research Means for Property Owners

This report illustrates that transaction volume and pricing can move differently. Lower sales activity does not necessarily produce an immediate decline in reported prices or an increase in average cap rates.

However, national averages are only a starting point. An individual medical office property’s value depends on its location, condition, tenant credit, lease structure, remaining lease term, occupancy, and capital requirements.

Owners considering a sale or sale-leaseback should compare relevant local transactions and evaluate the complete economics of the proposed arrangement.

Read the Original H2C Report

The original report includes national investment sales, cap rate and pricing trends, regional comparisons, and examples of medical office transactions.

Download H2C’s Q3 2020 Medical Office Building Quarterly Update (PDF)

Source: Hammond Hanlon Camp LLC, H2C Industry Insights — Medical Office Building Quarterly Update, Q3 2020, published October 2020. The report cites Real Capital Analytics for transaction and market data. This article summarizes third-party historical research; it is not a report of transactions compiled by John Milsaps.