Recent sales activity in several major Canadian centres, as witnessed by capitalization rate movements, would seem to suggest that interest on the part of investors in the office building sector is muted at best, or in fact declining in certain markets.
But what about specialty use office product, and in particular medical office buildings?
It would seem intuitive to conclude that as baby boomers age, they will continue to fuel demand for health care, and allied wellness services. Is this being reflected in increased demand for medical buildings specifically? It is difficult to reach any broad conclusion, however more and more dollars are apparently flowing into this sub-market, and the segment, once fragmented in terms of ownership, is now seeing increased scrutiny from large pension funds and others, who see a recession proof business.
For many years medical professionals delivered their services in “regular” office buildings, though many “Medical Arts” buildings did exist, particularly in the downtown core of major centres. Increasingly there were deemed to be benefits accruing to doctors and others to co-locate (and co-own) their premises. This phenomenon has been supported throughout Canada by Provincial Governments weighing in on the medical services delivery model.
From an investors perspective, what better tenant is there than a Government tenant? It’s a tenant who is paid for by the Government, which of course is the case for the majority of medical practitioners.
Another interesting development is the phenomenon of large Pharmacy retailers bring a team of medical practitioners to a location they either own or head-lease. In effect, they are creating a captive audience, driving demand for on-site prescription and laboratory services, often resulting in high (by regular standards) rental rates being paid by these sub-tenants. How does the commercial mortgage lending community view this development? It would appear as though familiarity has bred comfort, as is discussed more fully in a recent article by Stewart Pearson of Strategic Mortgage Capital Company, entitled Financing Medical Centres. READ MORE.