1. HEALTHCARE
MARKETBEAT
WASHINGTON DC METRO REGION MEDICAL OFFICE REPORT
A C&W HEALTHCARE REAL ESTATE GROUP PUBLICATION 2 Q10
ECONOMIC SNAPSHOT The Association of American Medical Colleges, currently
located at 2450 N Street NW, is looking for 250,000 SF to 300,000
The Healthcare Reform passed by Congress earlier this year will SF of contiguous space to purchase for its headquarters
have a profound impact in both the short- and long-term for the location. Options in Virginia and Maryland are being
medical office market. Due to the provisions of the law that will explored, in addition to sites in the District.
go into effect by the end of the third quarter, which expand
In April, the National Cancer Institute signed a ten-year lease
coverage to millions of new patients, demand for medical office
for 575,000 SF at the Shady Grove Life Sciences Center at a
space is expected to increase. As a result of this accelerated
rate of $37.37 per square foot (psf).
demand for space and the lack of significant supply growth in
the near-term, a dip of more than 100 basis points is expected in Advanced BioScience Laboratories signed a lease for 56,992
the national medical office vacancy rate to roughly 11% by the SF at 9800 Medical Center Drive in Rockville and will vacate
end of 2011 37,566 SF at Nicholson Lane in Kensington.
However, the law’s provisions that reduce government OVERALL VACANCY RATES:
reimbursement could threaten the bottom lines of some medical MEDICAL VS. GENERAL OFFICE SPACE
practices, which could restrain growth and limit demand in the MOB Vacancy General Office Vacancy
medical office sector in the long-term.
14.0%
PHYSICIANS’ & MEDICAL TENANTS’ PERSPECTIVE
12.0%
“The Operating Cost Challenge”
10.0%
Medical practice professionals discussed their biggest daily
8.0%
challenges in a new survey released by the Medical Group
Practice Management Association. According to the survey, 6.0%
entitled “Medical Practice Today: What Members Have to Say,”
dealing with rising operating costs was identified as the biggest 4.0%
daily challenge facing medical practices in 2010. 2Q 06 2Q07 2Q08 2Q09 2Q10
Real estate related costs often rank as the second largest
operating expense for medical practices, behind labor costs. As
such, medical practices are electing to take a hard look at their OWNERS’ PERSPECTIVE
real estate to identify and take advantage of savings that may
exist but currently go unnoticed. “A Solid Investment”
Furthermore, due to Congress’ failure to permanently address Medical office buildings (MOBs) remain a preferred investment
the flawed sustainable growth rate formula, the number two option across the county. MOBs continue to attract the attention
challenge cited in the survey was “maintaining finances with the of private buyers and large Real Estate Investment Trusts (REITs)
uncertainty of Medicare reimbursement rates.” Again, this is an alike. Nationally, due to their limited supply, the highest quality
area where addressing excessive real estate costs could assets in primary markets like Washington, DC are trading at low-
alleviate some of the pressure placed on a medical practice’s to mid-7 percent cap rates, while cap rates in secondary and
bottom line. tertiary markets begin in the mid-8 percent range.
A Lease Audit by a medical real estate professional is a simple, “What’s happening in the Market?”
cost free way to determine if real estate related expenses may Lillibridge Healthcare Services, Inc., a healthcare real estate
be reduced. firm, entered into an agreement with Ventas, Inc. Under the
“What’s happening in the Market?” terms of the agreement, Ventas will acquire all of Lillibridge’s
real estate holdings, including Providence Hospital (1140
Surescripts, a company that gives healthcare providers Varnum Street NE) and the DePaul Professional Building (1160
electronic access to patients’ prescription information, signed Varnum Street NE).
a five-year lease for 19,065 square feet (SF) at Potomac
Gateway North in Crystal City. The Chalmers Property Company sold a portfolio of two office
buildings located at 3803 and 3801 N Fairfax Dr, in Arlington,
The Dept. of Health and Human Services leased 185,120 SF at Virginia, one of which was a medical office building.
370 L’Enfant Plaza SW for five years at a rate of $46.00 psf. In Collectively known as Virginia Square Plaza, the buildings were
addition, the Dept. signed a renewal/expansion of their space purchased for $20,600,000 or $294.22 psf by Gazit USA. The
at 899 N Capitol Street NE for 150,000 SF, expected to buildings, totaling 70,015 SF, sit on 1.96 acres situated across
commence in early 2011. from the Virginia Square Metro Station.
