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Home / Construction/Development / A Quick Analysis of Major vs. Minor Markets

A Quick Analysis of Major vs. Minor Markets

August 14, 2015 by Hilda Martin Topics: Construction/Development, Mergers/Acquisitions, Real Estate Financing/Capital Markets

Revista’s mid-year construction report is about to come out, and ahead of its release, I’d like to dig into some of the stats. I’ve received a number of questions about MOB construction activity in secondary and tertiary markets and am curious about these markets myself! Most of the information that circulates is about major metro areas – but what about the rest of the country? To delve in, let’s break up the data into projects that fall inside the largest 50 metro areas vs. those that fall outside. These are pure medical office projects that are either in late planning or have broken ground.

In the largest 50 metros, there are roughly 26.1M square feet of medical office space under construction. This constitutes 3.7% of existing MOB inventory in those metros. Outside of the 50 metros, in secondary and tertiary markets, there are roughly 12.6M square feet under construction comprising only 2.1% of existing inventory. The difference in cost, as you might imagine, is fairly wide. The median project value in the largest 50 metros is $17 million as compared to $12 million for projects in the rest of the country.

But what about locations? Is the focus any different in areas with heavier population? Well, a little. 33% of the square feet being built in larger markets are based on the campus of a hospital while 37% in tertiary markets are on-campus. It makes sense that in smaller markets there might be more focus on the hospital “hub” location. But generally speaking, most agree that building medical office space out into the community is the way to go.

Alright, well who’s building? Are these projects affiliated with a hospital or system? In major metros, 57% of the square feet being built are affiliated with a hospital or system. Outside those metros, the percentage falls to 52%.

These statistics mostly fall into the realm of common sense when comparing heavily populated, big metro areas to smaller, less populated markets. It’s interesting to me, however, that construction as compared to existing inventory is so much lower outside the big metros. It’s an apples to apples comparison since we are comparing square feet being built to the square feet that already exist. Pair that with how much cheaper it is to build in these areas – you just might find an opportunity!

Blog Chart 8.11.15

Hilda Martin
Hilda Martin

Other Articles by Hilda Martin:

    • MOB Transaction Volume Cools in 4Q, Cap Rates Creep Up
    • MOB Construction Off Recent Highs in 4Q
    • Physicians Moving Away from Independent Practice, Monetizing their Real Estate

Previous Post:Healthcare Trust of America, Inc. Increases Third Quarter Dividend
Next Post:Hospital Real Estate Yields Compress Through the First Half of 2015

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