Q3 2023 While Commercial Real Estate Faces Uncertainty, Medical and Dental Properties Thrive in Phoenix

While Commercial Real Estate Faces Uncertainty, Medical and Dental Properties Thrive in Phoenix

As the commercial real estate market braces for potential corrections, healthcare facilities and medical offices stand resilient as essential services. While not entirely immune to the impact of rising interest rates, the demand for these properties remains steady through economic cycles, with Phoenix emerging as a high-demand market according to RevistaMed.

Healthcare providers are currently navigating the intersection of commercial real estate trends and the impact they have on rising occupancy costs, a dynamic art in the realm of healthcare real estate. Hospitals and healthcare practices primarily rely on revenue generated from insurance reimbursements. However, these reimbursements are failing to keep pace with the ever-rising inflation, both in Phoenix and across the board.

Phoenix, known for experiencing one of the steepest inflation rates due to pandemic effects, is gradually returning to normalcy. This inflation is driven by soaring construction costs attributable to increased material and labor expenses. Existing buildings are grappling with rising operating costs, notably insurance and property taxes, contributing to elevated lease rates, currently averaging $24 NNN across the Phoenix metro area.
The supply and demand dynamics of healthcare properties also fuel the surge in lease rates. Phoenix boasts occupancy rates consistently at or above 90%, accompanied by high net absorption rates for medical offices.
The demand for medical properties is evident in cap rates, which remain at a solid 6.0% for institutional-grade tenants in newer buildings situated near hospitals.
RevistaMed’s quarterly webinar discussion underscores the current market’s lack of a price premium for selling properties as a portfolio. This means that individual medical and dental properties can achieve valuation rates similar to those of portfolios. For individual property owners in the Phoenix metro area, the market’s fundamentals are firmly in your favor. Capitalize on this thriving sector now.
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