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Q2 2023 Navigating Current Market Conditions: Shifting Expectations for Buyers and Sellers

Navigating Current Market Conditions: Shifting Expectations for Buyers and Sellers

As the looming specter of a pending recession approaches, healthcare property investments are facing the impact of rising capital costs. Many sellers had previously built or purchased properties at lower capital costs, anticipating selling them at lower cap rates. However, the current landscape with higher capital costs and risk-free interest rates of 5% for savings accounts has prompted investors to carefully explore all their investment options. It’s a reality check – for investors who rely on raising funds and leveraging, cap rates that are at or below the cost of capital may no longer yield viable returns.

Despite these challenges, healthcare real estate in Arizona continues to demonstrate robust fundamentals. Cap rates are on the rise but still generally lower on average compared to other asset classes. Lease rate increases have stabilized quarter over quarter but have shown promising growth year over year. While the overall activity has experienced a decline both quarterly and annually, healthcare real estate investments are expected to display resilience and a swift rebound, particularly in Arizona.

Revista Med’s graph highlights Phoenix as one of the top 10 markets for rent growth, solidifying its position as a favorable destination for healthcare property investments:

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In the face of the current market conditions, both buyers and sellers are experiencing a shift in expectations. Owners with long-term debt at competitive rates are more likely to weather the fluctuations in interest rates and hold on to their properties. On the other hand, buyers are adopting a more cautious approach, patiently awaiting opportune moments. The 1031 exchange market remains ever-active, with investors seeking ways to defer capital gains taxes and optimize their investments. As uncertainty persists, strategic planning and informed decision-making become paramount for all players in the healthcare real estate landscape. Stay ahead of the curve and adapt to the changing market by keeping a close eye on developments and opportunities. As the terrain evolves, being proactive will be key to success.
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