The Increasing Demand for Healthcare Real Estate & Medical Properties
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
This article was updated on 7/12/2023.
The COVID-19 pandemic affected the economy and healthcare operations in many ways. To stop the spread of the virus, many sought out healthcare through telehealth solutions. However, now that vaccination rates are rising and restrictions have been lifted, the demand for in-person healthcare is growing again.
The healthcare real estate market is growing quickly relative to other markets. The pricing of healthcare and medical properties is now at a premium compared to suburban offices, according to Real Capital Analytics.
Commercial real estate is a complex world, and special-purpose real estate can be even more complex. It's important to understand both the current fundamentals of the market and projections for the future. Here, we'll dive into what you should know about investing in healthcare real estate.
Let's get started.
What an Aging Population Means for Commercial Real Estate
Modern technology has improved our healthcare in many ways. More treatment options are available, and they're more effective. The fertility rate is declining, and the life expectancy rate is increasing, which results in an aging population.
The US Census Bureau projects that the number of Americans aged 65 and older will reach 80 million in 2040.
Older Americans will need more medical care, and healthcare providers will need office spaces to provide that care. Ultimately, this aging population has grown and will continue to grow demand for healthcare real estate.
How Modern Preferences Drive the Demand for New Commercial Spaces
There's also an ongoing trend towards providing health care outside of hospitals. There are several factors driving this change.
Sometimes, healthcare provided at a location other than a hospital comes at a lower cost. According to Lisa Gillespie's June 4th, 2021 article in Modern Healthcare, innovations in medical technology allow for less invasive procedures. That means there's less of a need for the extra resources a hospital provides. Procedures can be safely conducted in a space outside the hospital, which means they're cheaper than a procedure inside a hospital.
An additional factor driving the demand for healthcare real estate is convenience. Retail locations are more convenient than the commute a distant hospital might require, and saving time is a key motivation in today's busy world.
Reinforcing this is the fact that, sometimes, patients do not care who their provider is. They would rather go to a convenient location than drive to the hospital for a specific physician.
The result of these preferences is that retail clinics are growing at a double-digit pace, adding to the growth of the healthcare real estate market.
Looking at the Statistics for Healthcare Real Estate
Outside of the hospital, there are many other settings where providers can offer healthcare. One of those settings is an ambulatory surgical center (ASC).
ASCs are healthcare facilities that provide same-day surgical outpatient care. These centers allow patients to be discharged within 23 hours of care, which reduces the risk of infection and allows recovery to take place in the comfort of the patient's home.
Market research predicts that the ASC market will experience an annual growth rate of 6% between 2018 and 2023. With this growing demand for ASCs, it's clear this is an area of commercial real estate that could provide strong ROI, and ASCs are just one example of how the healthcare real estate market is expanding.
The Future of Healthcare Real Estate
The demand for healthcare outside of the hospital is driven by a number of factors. In addition to an aging population and a desire for convenience, there is also a growing demand for elective procedures.
Major metro areas in the southwest, southeast, and California are attracting retirees, who make up the largest portion of people needing healthcare. But these aren't the only regions that will see a demand for more healthcare real estate: Around the country, the need for innovative healthcare real estate will grow.
As the economy continues to recover from the COVID-19 pandemic and the effects of inflation, more people will return to work and will again have access to health insurance. The demand for healthcare will rise, and the market for healthcare real estate will rise, too.
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