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CBRE Group, Inc. Named Top Real Estate Brand in Lipsey Survey for 20th Consecutive Year
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  • Midwestern Markets See Impressive Demand for Medical Office

Midwestern Markets See Impressive Demand for Medical Office

Detroit, MI | December 9, 2019
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Detroit – Dec. 9, 2019 – The Midwest has experienced strong demand for medical office product through Q2 2019, with Detroit recording 241,000 square feet of positive absorption year-over-year, according to a new report from CBRE.

The medical office market in Detroit has performed very well, recording 241,000 square feet of positive net absorption over the past year ending in Q2 2019. Since 2010, the market has recorded 2.97 million square feet of positive net absorption, the most in the Midwest. Recent activity has driven vacancy rates down to 9.5 percent and asking rates increased 1.2 percent year-over-year to $20.65. There is currently no construction in the pipeline.

“Medical office has been an extremely active sector in the Detroit market as healthcare providers continue to expand in efforts to capture a larger market share in a very competitive environment,” said Paul Beitz, senior vice president with CBRE in Detroit. “With no construction in the pipeline we could see rates continue to rise as demand remains strong.”

Overall, the Midwest has been a leader of absorption nationally the past year, with four markets – Chicago, Cleveland, Columbus and Cincinnati – among the nation’s top 10 for highest net absorption as percentage of inventory. Chicago led the nation with 915,000 square feet of net absorption over the past year ending in Q2 2019.

Midwest Medical Office Demand
Market Positive Net Absorption Q2 2018 – Q2 2019* Net Absorption 2010 – Q2 2019
Chicago 915,000 sq. ft. 1,960,000 sq. ft.
Cleveland 364,000 sq. ft. 752,000 sq. ft.
Columbus 264,000 sq. ft. 2,043,000 sq. ft.
Detroit 241,000 sq. ft. 2,976,000 sq. ft.
Minneapolis 162,000 sq. ft. 2,381,000 sq. ft.
Cincinnati 109,000 sq. ft. 1,591,000 sq. ft.
Louisville 62,000 sq. ft. 479,000 sq. ft.
Kansas City 50,000 sq. ft. 697,000 sq. f.t
• Net absorption measures the amount of medical-office space newly occupied in the year ended Q2 2019 less the amount newly vacated.

National Trends

Strong fundamentals have increasingly made U.S. medical office real estate a favorite of institutional investors, keeping investment volumes at high levels and capitalization rates low this year in relation to conventional offices.

CBRE’s report cites several factors behind the continued popularity of medical office, including a steady vacancy rate at 10.3 percent despite a 10-year high in construction completions in the second quarter, a sustained increase in average asking rents since 2013, and strong demand for health-care services due to an aging population and other demographic trends.

As a result, transaction volume for medical office buildings stands 50 percent higher this year than before the recession, though it has receded from its early-2018 peak. Foreign investors, domestic institutions and real estate investment trusts are steadily getting more active the medical office market. Cap rates – a measure of a property’s income as a percentage of its price - for medical offices have pulled even with those of conventional offices after years of registering higher.

“There is a continued rush by capital to this property sector,” said Ian Anderson, CBRE Head of Americas Office Research. “This is a generational, secular trend driving interest in this type of real estate. The median age of the American population is gradually increasing, and health care as an industry is moving more toward treatment at outpatient centers and medical offices than at hospitals.”

CBRE defines medical offices as office buildings in which at least half of leasable space is occupied by medical uses such as dental, surgical or special practitioners and services. Many such facilities include special power requirements, lab space and high parking ratios. This classification excludes medical stores, hospitals and long-term care facilities.

CBRE’s report identifies multiple markets with ideal conditions for additional growth in this sector, noting that West Coast markets tend to have the tightest vacancy, and Midwestern markets showed strong demand in the past year.

U.S. Leaders In Medical Office Demand
Market Positive Net Absorption* Net Absorption as Percentage of Net Rentable Area
Chicago 915,000 sq. ft. 7.3%
Atlanta 557,000 sq. ft. 2.3%
New Jersey 482,000 sq. ft. 2.0%
Nashville 416,000 sq. ft. 4.5%
Inland Empire 384,000 sq. ft. 9.5%
Cleveland 364,000 sq. ft. 4.8%
Columbus 264,000 sq. ft. 3.5%
San Francisco 248,000 sq. ft. 2.2%
Portland, OR 160,000 sq. ft. 2.6%
Cincinnati 109,000 sq. ft. 1.7%
• Net absorption measures the amount of medical-office space newly occupied in the year ended Q2 2019 less the amount newly vacated.

To read the full report, click here.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE: CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2020 revenue). The company has more than 100,000 employees serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.

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