Medical Office market could see a dip as outpatient procedures and visits are down
COVID worries decrease utilization of medical offices nationwide
While emergency rooms and intensive care units in heavy COVID-impacted regions are busier than ever, the remainder of the medical field has seen steep declines in patient visits and, in-turn, revenues. Many states, including Tennessee, barred elective surgeries in hospitals or outpatient facilities. In addition, patients feeling anxiety about the spread of COVID-19, especially those in at-risk age groups, may not want to leave the house for doctor’s visits that are able to be deferred until the immediate threat level is lowered.
A study by The Commonwealth Fund showed that ambulatory (walk-in, non-hospital) visits were down 54% from March 1 to April 12, 2020. This sharp decline in customers has led to a shock in medical labor: a survey of 724 medical practices by the Medical Group Management Association showed that 22% of the workforce had been laid off and a further 48% has been temporarily furloughed.
Decline in ambulatory visits relative to 3/1 baseline
Nashville has a robust medical office market, totaling 12.3 million square feet across the Nashville-Davidson-Murfreesboro-Franklin metro area. This market is bolstered by Vanderbilt University’s nationally-recognized hospital and children’s hospital along with two highly regarded regional hospitals: St.Thomas and TriStar. The market has been one of the strongest performing medical office markets in the nation: vacancies are tight at 3.7%, under construction pipeline is strong at 257,000 square feet, and asking rents have risen 19.7% from Q1 2016 to Q1 2020.
As patient visits and revenues decrease, some offices may not be able to make rental payment obligations. Landlords will be forced to work with tenants on rent-relief packages or concessions on upcoming renewals. However, Nashville’s positioning as the top medical market in the state of Tennessee and second largest medical market in the Southeast, along with its association with Vanderbilt’s world-class care, should position it well to recover from COVID-19 impacts in the medium- to long-term.