2. CUSHMAN & WAKEFIELD
CUSHMAN &
WAKEFIELD
RESEARCH
1
MID-ATLANTIC MEDICAL OFFICE MARKET
MARKET OVERVIEW
ECONOMIC OVERVIEW
The passage of the Affordable Healthcare Act in 2010
coupled with an aging baby-boomer population has
brought healthcare into the national conversation. Per
the Centers for Medicare & Medicaid Services, personal
health care expenditures in 2012 were almost $2.4
trillion with physician and clinical services accounting for
$565 billion.
Per the U.S. Bureau of Labor Statistics, overall U.S.
healthcare employment for June 2014 increased by
21,000 jobs with employment upticks in ambulatory
healthcare services and nursing and residential facilities.
Preliminary June numbers point to an increase of 6,000
jobs each in the Education & Health Services sectors for
the Washington-Arlington-Alexandria and the Baltimore-
Towson metropolitan statistical areas. This was welcome
news after it was reported in Q4 2013 that for the first
time in years, healthcare employment declined. While
healthcare employment remains robust, for 2013
employment gains were less than the prior year averaging
17,000 per month rather than 27,000 per month.
INVESTMENT ACTIVITY
The first half of 2014 experienced some significant
investment sales activity. In the DC metro area, Harrison
Street Real Estate Capital LLC closed on a 22-property
medical office portfolio, worth $500 million, from
Washington Real Estate Investment Trust. The 1.5-
million square foot (msf) portfolio included the three-
property Prosperity Medical Center, located in
Merrifield, VA, with a combined rentable base area (rba)
of 253,293 sf, and Woodburn Medical, located in
Annandale, VA, with a combined rba of 173,718 sf.
Additionally, American Realty Capital Healthcare Trust, Inc.
purchased 4175 N Hanson Court (Bowie, MD) from LaSalle
Investment Management in May. The 36,260-square feet (sf)
building traded for $12.4 million or $343 psf.
In Baltimore, the 79,360-sf Johnston Professional Building
traded for $24 million or $302 psf to Healthcare Trust of
America, Inc. Number 9 LLC purchased the 32,583-sf 9 Park
Center Court in Owings Mills for $8.25 million.
CONSTRUCTION PIPELINE
Inova Medical Office IV (112,507 sf) located at 3580 Joseph
Siewick Drive in Fairfax, VA delivered in March and is
currently only 52.8% leased. Inova is in the midst of an $850
million hospital expansion of its Fairfax Medical Campus. The
entire project is expected to deliver in 2016. In 2013, the
hospital opened a new medical/surgical tower in addition to
renovating its old tower. Also included in the expansion is a
new tower to house its Women and Children’s Hospitals
and a parking garage.
Fallsgrove Plaza (110,000 sf) located at 14995 Shady Grove
Road in Rockville, MD delivered in April almost fully
available. Balfour Concord is developing 1850 Town Center
Parkway in Reston, VA. The 175,000-sf condominium
property is set to deliver in Q3 2014. Also, due to deliver in
Q3 2014 is the 15,000-sf Gatehouse Medical Center located
at 8120 Gatehouse Road in Fairfax, VA.
Montgomery County will have its first new hospital in 35
years when the 237,000-sf Holy Cross Germantown
Hospital opens in October. The hospital will be LEED Gold
certified and will also have a four-story medical office
building on its campus.
The Maryland Proton Treatment Center is under
construction at the University of Maryland BioPark in
Baltimore and expected to open in 2015. It is estimated that
the center will be able to treat 1,900 patients annually and
will be the only facility in Maryland to have five treatment
rooms.
Location
Active
Physicians
(2012)
Total
Hospitals
(2011)
United States 834,769 4,973
Washington,
DC
6,238 11
Virginia 20,060 89
Maryland 20,688 48
*Source: The Henry J. Kaiser Family Foundation
3. CUSHMAN & WAKEFIELD
CUSHMAN &
WAKEFIELD
RESEARCH
2
MID-ATLANTIC MEDICAL OFFICE MARKET
SNAPSHOT
MARKET OVERVIEW
The overall vacancy for all four markets finished Q2 2014
at 9.9%. DC metro markets averaged an overall vacancy
rate of 10.5%. Both the Suburban Maryland and Baltimore
Metro markets had overall vacancy rates in the single digits.
Additionally, both Suburban Maryland and Baltimore Metro
maintained positive overall net absorption for the last four
years. Year-to-date absorption for all four markets finished
at 68,868 sf.
An uptick in vacancy put downward pressure on direct
asking rents. The average direct asking rental rate for all
four markets declined 5.7% from Q1 2014 to end Q2 at
$28.04 psf. Washington, DC has the highest direct average
at $31.81 psf.
Year-to-date leasing activity ended the first half of the year
at 292,607 sf, a 2.1% increase from this time last year. The
first quarter was responsible for the majority of new
activity with 220,703 sf in transactions.
Not surprisingly, Northern Virginia leads the other four
markets in activity. The redevelopment of Tysons Corner
and the (now active) Silver Line rail route are expected to
significantly increase the local Tysons population from
17,000 residents to over 100,000 residents by 2050.
-300
-200
-100
0
100
200
300
2010 2011 2012 2013 2014
YTD
Thousands
Washington, DC Suburban Maryland
Northern Virginia Baltimore Metro
OVERALL NET ABSORPTION
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
psf
DIRECT GROSS RENTAL RATE DIRECT VACANCY RATE
DIRECT RENTAL RATE VS VACANCY
OUTLOOK
Both the DC and Baltimore metro regions are projected
to grow in population. Ten years from now, the DC
metro region will have increased by an expected 8.2%
while the Baltimore metro population should increase
11.0%.* Washington, DC experienced a considerable
growth in its “millennial” population. Per a January 2014
report by the DC government, an analysis of 2012 data
showed that “Of the 53,830 who moved to DC from
other states, the majority were 20-24 years old (23.8%)
and 30-34 years old (18.4%).”
*Source: Cushman & Wakefield; CoStar Group
*Source: CoStar Group
Since 2012, 1,058 residential units have delivered in
Tysons. Half of the square footage currently under
construction is residential or 1,275 units. An additional
3,000 residential units could be added to the pipeline
based on approved plans.
*Source: Moody’s Economy.com
4. CUSHMAN & WAKEFIELD
CUSHMAN &
WAKEFIELD
RESEARCH
3
MID-ATLANTIC MEDICAL OFFICE MARKET
SNAPSHOT
An important consumer in healthcare, the 65 and older
segment, is estimated to climb in the DC metro and
Baltimore metro regions by 37.2% and 32.6%,
respectively. This trend coincides with the U.S.
government’s estimates regarding the country’s aging
population. Those 65 years and older are expected to
make up 20% of the U.S.’s population by 2030. By 2050,
19 million residents will be over 85 years of age.*
*Source: Federal Interagency Forum on Aging Related Statistics
The affects on access to healthcare via The Affordable
Healthcare Act have yet to be fully felt. Health reform, in
whatever form it takes, is expected to create a greater
dependency on ambulatory care and prevention services.
Experts advocate that health delivery in medical office
facilities needs to represent more of a retail experience.
This should propel developers to increase investment to
expand ambulatory capacity in the future.
MID-ATLANTIC MARKET
SUBMARKET INVENTORY
OVERALL
VACANCY
RATE
DIRECT
VACANCY
RATE
YTD LEASING
ACTIVITY
YTD DIRECT
NET
ABSORPTION
YTD
OVERALL
NET
ABSORPTION
DIRECT WTD.
AVG
ALL CLASSES
GROSS
RENTAL
RATE*
DIRECT
WTD. AVG.
CLASS A
GROSS
RENTAL
RATE*
Washington,
DC 1,540,851 16.9% 16.6% 9,504 570 (2,688) $31.81 $43.00
Suburban
Maryland 5,380,449 7.3% 6.9% 46,183 2,718 5,718 $30.09 $31.50
Northern
Virginia 4,525,466 12.1% 11.7% 168,223 (37,842) (40,607) $28.51 $29.04
Baltimore
Metro 5,233,997 8.5% 8.4% 68,697 103,422 106,259 $24.41 $24.43
TOTALS 16,680,763 9.9% 9.6% 292,607 68,868 68,682 $28.04 $27.82
* Source: Cushman & Wakefield; CoStar Group. Rental Rates Reflect Asking $psf/year
5. CUSHMAN & WAKEFIELD
CUSHMAN &
WAKEFIELD
RESEARCH
4
MID-ATLANTIC MEDICAL OFFICE MARKET
MID-ATLANTIC MARKET
SIGNIFICANT YTD 2014
LEASE TRANSACTIONS
MARKET TENANT BUILDING CLASS SQUARE FEET
Fallsgrove Plaza, Rockville Suburban Maryland
Arthritis & Rheumatism
Associates
A 12,419
224 Cornwall Street, Leesburg Northern Virginia Inova Health A 9,452
200 Hospital Drive, Glen Burnie Baltimore Metro
Chesapeake Orthopaedic &
Sports Medicine Center
B 5,357
650 Pennsylvania Avenue,
Washington, DC
Washington, DC Children’s Hospital B 4,300
2440 M Street NW, Washington,
DC
Washington, DC Sibley Physicians Group B 1,537
SIGNIFICANT YTD 2014
SALE TRANSACTIONS
MARKET BUYER
PURCHASE
PRICE/$PSF
SQUARE FEET
WRIT Medical Office Portfolio DC Metro Region
Harris Street Real Estate
Capital LLC
$500,000,000/$333 1,500,000
Johnston Professional Building,
Baltimore
Baltimore Metro
Healthcare Trust of
America, Inc.
$24,000,000/$302 79,360
4175 N Hanson Court, Bowie Suburban Maryland
American Realty Capital
Healthcare Trust, Inc.
$12,450,000/$343 36,260
SIGNIFICANT YTD 2014
CONSTRUCTION
COMPLETIONS
MARKET MAJOR TENANT
COMPLETION
DATE
BUILDING SF/
(% LEASED)
Inova Medical Office Building IV,
Fairfax
Northern Virginia N/A Q1 2014 112,507 (52.8%)
Fallsgrove Plaza, Rockville Suburban Maryland
Arthritis & Rheumatism
Associates
Q2 2014 110,000 (11.0%)
SIGNIFICANT PROJECTS
UNDER CONSTRUCTION
MARKET MAJOR TENANT
COMPLETION
DATE
BUILDING SF/
(% LEASED)
24430 Gum Springs Road, Aldie Northern Virginia N/A Q3 2015 57,000 (0%)
