It is no secret that the Sun Belt states have experienced dramatic population growth since the onset of the pandemic. We have heard it heralded from the rooftops for the past three years. Arizona has been no exception, with tens of thousands of people migrating to the state since 2020.
Even before the pandemic, Arizona's population growth rate tripled the U.S. average from 2018 to 2020. This means Arizona welcomed about 90,000 new residents year over year. Arizona is also a major retiree state, with nearly 19% of the resident population over the age of 65, and all these people can increasingly afford healthcare due to government subsidies. Add the “snowbirds” to the mix, and you have crafted the exact recipe for demand for medical services outpacing supply.
This influx and the expected need for healthcare has spurred continued requirements for new clinics, surgery centers, urgent care, stand-alone emergency departments and hospitals. It has also created competition between hospital systems and physician equity groups rushing to plant their flag in an area to beat the competition, primarily in the Phoenix suburbs.
Currently, Transwestern is tracking 32 new medical office buildings proposed for construction in the metropolitan area. However, many of these projects will be delayed due to the high cost of construction, rising interest rates and a 60-75% pre-leasing requirement. As a result, second-generation medical space is becoming increasingly valuable and getting snapped up quickly in the far east and western suburbs. Though surgeons and other physicians want proximity to a hospital, limited options in many parts of the Valley have caused several medical groups to turn to office and retail buildings as a substitute.
The trends we are seeing today show no signs of reversing. Arizona’s medical office sector and population are projected to continue outpacing the national average for the foreseeable future, with the favorable climate, strong job market and relatively low cost of living continuing to attract new residents and businesses. Predicted growth of 1.3%, or roughly 100,000 people annually, is expected to positively impact the state's economy as well as the health and well-being of its residents.
Fortunately, we expect many of the proposed medical office buildings will be built when the economy has stabilized, and interest rates and construction costs decrease. In addition, more office and retail sites will likely be converted into medical office uses close to patients’ homes.
Unlike services that are handled remotely, healthcare is predominantly a hands-on experience. As a result, more healthcare real estate will be required to meet the needs of the growing Arizona population.
Kate Morris serves as Senior Vice President of Transwestern’s Healthcare Advisory Services Group. Based in Phoenix, Kate and her team provide services to physicians, medical building owners, hospitals, senior housing, life sciences and other healthcare providers. She also supports investors interested in leasing, buying or selling their properties.
SEE ALSO:
- Caring for Medical Office Buildings: A Patient-Centric Approach to Asset Services
- Adaptive Reuse or New Construction? Considerations for Life Sciences Real Estate.
- How Real Estate Influences Healthcare Innovation
- Best Practices for Renewing Medical Office Leases
- U.S. Market | Medical Office
RELATED TOPICS:
commercial real estate
healthcare real estate
agency leasing
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