Graying of metro Atlanta fuels construction of medical office buildings

By David Pendered

A surge in the construction of medical office space has accompanied metro Atlanta’s rising number of older residents. The region now ranks among the nation’s top markets for investments in medical office buildings, according to a report from CBRE.

northside hospital, midtown

The Northside Midtown Medical Office Building is slated to open in 2018 and provide 170,000 square feet of space, located at 1130 West Peachtree St. Northside reported in 2016 the building was 80 percent leased. Credit: northside.com

Metro Atlanta was one of 30 markets examined by analysts with CBRE, a global commercial real estate services and investment firm based in Los Angeles and with offices in Atlanta.

Metro Atlanta commands attention in the realm of commercial real estate for two primary reasons: The high number of seniors already in the area; and the projected growth in the number of residents 65 years and older. CBRE predicts that the demographic aged 65 years and older crowd comprise a full 25 percent of the region’s growth from 2016 through 2021.

That is to say, of the 633,900 additional residents expected to reside in the region by 2021, 167,400 of them will be aged 65 years or older, according to CBRE.

This growth rate places Atlanta third on CBRE’s chart that marks the percentage gain of seniors. Atlanta, at 25.3 percent, trails No. 1 Phoenix (29.4 percent) and Las Vegas (27.6 percent).

Another reason investors watch metro Atlanta is because the market already has a concentration of health care services. As one of the nation’s largest medical markets, the region has 19.4 million square feet of medical office space.

More than $2 billion of new construction is underway, CBRE reported, including:

  • Piedmont Atlanta Hospital’s $603 million Marcus Heart and Vascular Center;
  • Children’s Health Care of Atlanta $1 billion-plus pediatric hospital;
  • Northside Hospital’s $525 million expansion in five locations throughout the region, including a new medical center tower in Midtown that’s to open in 2018.
cbre, mob

CBRE analysts found a correlation between established health care markets and a growing population that points toward an increasing demand for medical office space. Credit: CBRE

Of note, investment advisers are warning caution flags over Piedmont’s expansion. Moody’s Investors Service issued a credit opinion in October 2016 in which it downgraded Piedmont’s credit outlook. Moody’s still provided Piedmont with an investment grade rating of Aaa.

Piedmont got dinged for its future debt related to its two-part plan to invest $600 million at its campus in Buckhead. Analysts also cited Piedmont’s 35 percent increase in debt, related to the acquisition of Athens Region Medical Center, and challenges related to managing the ARMC doctors, who are accustomed to their way of doing business.

From its perspective, CBRE sees a continued strong market for medical office space. Even in light of the debate over the Affordable Care Act.

The CBRE report addresses the ACA debate head on, including its impact on the medical office market. CBRE predicts that, regardless of the outcome of the debate, the long-term trend is toward a rising demand for medical office space:

  • “As U.S. health care legislation continues to be debated, uncertainty surrounding what a new plan may include will continue to affect decision-making among health care providers in the near term. In the long run, however, demographic trends, technological advances and an emphasis on cost-efficiency will all sustain demand for health care services generally, and medical office space specifically, regardless of any regulatory changes that are eventually enacted.”

David Pendered, Managing Editor, is an Atlanta journalist with more than 30 years experience reporting on the region’s urban affairs, from Atlanta City Hall to the state Capitol. Since 2008, he has written for print and digital publications, and advised on media and governmental affairs. Previously, he spent more than 26 years with The Atlanta Journal-Constitution and won awards for his coverage of schools and urban development. David graduated from North Carolina State University and was a Western Knight Center Fellow. David was born in Pennsylvania, grew up in North Carolina and is married to a fifth-generation Atlantan.

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