Las Vegas
Las Vegas may not be an obvious choice, as vacancy at its healthcare properties at mid-year 2014 was at 21.9 percent, according to Marcus & Millichap research. However, it is a market that tends to be among favorite destinations for retirees, notes Smelter. And unlike in coastal cities, there are acres and acres of desert land available for future construction projects, he adds: “Today, [it] may be more risky, but there is room to grow.” At mid-year 2014, quoted rents at healthcare properties in Las Vegas averaged $25.80 per sq. ft., above the national average, according to Colliers International. Prices on property acquisitions averaged $263 per sq. ft., compared to the national average of $216 per sq. ft. for the fourth quarter of 2014 reported by Real Capital Analytics (RCA), a New York City-based research firm.
Tucson, Ariz.
Tucson is another market that falls under Smelter’s “good discount buy” category. At mid-year, vacancy at the city’s healthcare properties averaged 19.9 percent. But Tucson is warm and affordable, which means the baby boomers are coming. “You can buy at lower prices, so if you are looking for higher returns, you will probably be looking [here],” Smelter says.
Phoenix
Healthcare real estate in Phoenix also has potential. Marcus & Millichap estimated its average vacancy rate at 21.6 percent. At the same time, Phoenix ranked ninth on Colliers’ list of U.S. cities with the largest forecasted increase in population 65 years of age and older between now and 2019. Average quoted rents in the city in 2014 were decent, at $22.62 per sq. ft. Meanwhile, investors were paying average cap rates of 7.7 percent and average prices of $122 per sq. ft. for Phoenix assets, compared to the average of 7.23 percent and $216 per sq. ft. for the nation.
10. Denver
Denver, with high quality universities, a very diverse economic base and high marks for environmental quality, came in 11th on the CMI. A skilled workforce and growing and diversified high-tech sector have boosted the economy’s potential and attracted Bay Area tech giants, which leased nearly 1 million sq. ft. of office space in the city since 2012. A growing talent pool—attracted by the region’s concentration of well-paying industries and an active, outdoors lifestyle—is expected to maintain momentum for the local economy going forward.
Atlanta
Atlanta may present somewhat of a challenge for interested buyers as a lot of its healthcare assets are owned by hospital systems, according to Kuzmanovich. Still, like much of the Southeast, the Big Peach boasts some pretty attractive demographics. It’s likely to experience a 22.7 percent increase in population 65 years of age and older between now and 2019, reports Colliers. It posted a very high absorption rate year-to-date. At mid-year 2014, the vacancy rate in Atlanta averaged 13.1 percent, with quoted rents at $22.12 per sq. ft. This was reflected in reasonable pricing—cap rates on healthcare assets in the city averaged 7.5 percent, with prices averaging $184 per sq. ft., according to Colliers.
Charleston, S.C.
Charleston is also set for an influx of retirees in the next few years, with a 24.8 percent increase in that segment of the population by 2019, according to Colliers. The vacancy rate at the city’s healthcare properties averaged 2.8 percent, with quoted rents of $19.48 per sq. ft.
Nashville
Nashville is a hot city right now for all types of properties. The city will likely experience growth of 23.4 percent in its retiree population between now and 2019, reports Colliers. Meanwhile, vacancy at its healthcare properties already averages just 6.1 percent, with quoted rents of $21.08 per sq. ft. And it’s still affordable—last year, investors were paying an average cap rate of 8.0 percent and an average price of $107 per sq. ft. for healthcare assets in the city.
Houston
The Houston metro reported a hefty 33 percent jump in sales to $5.6 billion. “There are a lot of interesting things going on in Houston and there is interest from a lot of different investment groups,” says Fay. Earlier this year, Columbia Property Trust sold three Houston office properties for a combined $272 million.
Orlando, Fla.
Florida’s cities, with their sunshine and affordable housing, are a sure bet for investment in healthcare assets, notes Smelter. At mid-year 2014, Orlando posted an average vacancy rate of 11.5 percent, according to Marcus & Millichap research. Quoted rents averaged $20.24 per sq. ft.
5. Jacksonville, Fla.
Jacksonville, Fla. is number five on CoStar’s list of top markets for new development.
“Cities like Fort Lauderdale and Palm Beach and Jacksonville have made the list over the years partially based on cost, both for residents and for business that drive job growth,” says Rybczynski.
Developers had 6,906 new units of multifamily housing in some phase of the development process in Jacksonville, Fla. in the third quarter of 2018, according to CoStar. That works out to 8.2 percent of the current inventory.
MPF counts 3,988 new rental apartments under construction in the Jacksonville metro area. That’s equal to 3.5 percent of the inventory across the broader metro area.
Tampa, Fla.
It’s another delicate balancing act in the Tampa-St. Petersburg market. Tampa’s employment segment has not yet recovered all of the jobs that it lost in the downturn. Steady deliveries of inventory pushed vacancies up to about 4.8 percent, a modest increase, according to Fannie Mae. Rent growth is expected to slow down, but should continue to remain in the range of 2.5 percent. Tampa is making progress, but be mindful of the fact that the relatively low cost of single-family homes is keeping demand for rental units in check.
Pittsburgh
The Marcus & Millichap team is bullish on the city, citing it among the most attractive markets for healthcare investment right now. Pittsburgh does boast a vacancy rate of only 4.5 percent, according to Marcus & Millichap research. At mid-year 2014, rents in the city averaged $17.07 per sq. ft.
Boston
Sales held steady in Boston at $8.25 billion. One of the notable office transactions included the $528.8 billion sale of One Federal Street.
San Jose, Calif.
San Jose is not just located in the heart of Silicon Valley; it is very much young at heart. The U.S. News & World Report survey notes that the city of 1.9 million ranks as the number one metro area for college readiness among high school students. Beyond its intellectual pipeline, San Jose has achieved technology sector employment levels that were 15.0 percent higher than peaks achieved pre-recession, according to Fannie Mae’s multifamily outlook for spring 2017. In the first quarter, San Jose’s vacancy rate averaged 4.75 percent, beating the national level, and asking rents were at $2,580, an increase of 2.0 percent over the year before. Looking ahead, 2017 is expected to be a strong year, with net absorption at just under 5.0 percent and vacancy rates at around 6.0 percent, according to CoStar figures cited in the Fannie Mae report. The former two indicators are expected to retract slightly through 2018, and then drop noticeably below about 3.0 percent after 2019.
