Office and Health Care Real Estate are up in Demand

A study by consulting firm PwC showed that office and health care real estate are very much in demand. The study also showed that investors remain bullish on the real estate sector.

In a survey of real estate investors released last week, PwC said that the home office real estate segment is showing consistent upward trend. Most geographic markets are expected to be in either the recovery or expansion phase of the real estate cycle during the next four years.

Meanwhile, respondents reported higher occupancy levels, greater leasing activity among both existing and prospective office tenants, and better control of negotiations with tenants and buyers.

Mitch Roschelle, partner with PwC and leader of the firm's United States real estate advisory practice, noted that office-based jobs have returned to pre-recession levels. Additionally, they have grown consistently on a monthly basis during the course of the last year. At the same time, supply has remained muted.

“I think we’re at a great point because capital is flowing into U.S. real estate at perhaps a record level, fundamentals are gradually improving and the demand for space is driving rents up,” he said.

Of the 17 major cities covered in the survey, Washington, D.C. was the only one that respondents don’t expect to see either recover or expand in the next four years. Of the 57 office metro areas studied, 50 were reported to be in either recovery or expansion, compared with 42 areas two years earlier.

The survey also revealed  “enduring investor optimism and a seemingly limitless appetite” for assets in the national medical office buildings (MOBs) market, PwC said.

Roschelle added that the MOB sector is currently enjoying “really, really strong fundamentals.” In addition to an aging population, the sector is being supported by the increase in medical specialization and doctor visits, according to Roschelle. He added that some suburban office properties are being repurposed as MOBs.

“It looks like an interesting play,” he said.

In other sectors, the survey found that investors see retail continuing its slow recovery as demand continues to outpace new supply. As a result, investors feel that a growing number of markets will be in either the recovery or expansion phase of the real estate cycle by year-end 2014, according to PwC’s report.

Elsewhere, the industrial sector continues to improve, and many local occupancy levels are now near rates last seen prior to the downturn, according to the survey. Additionally, respondents said stronger economic growth has increased demand for both single-family and multifamily housing. The number of households continuing to rent, either by choice or necessity, remains at a high level, the survey showed.

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