Healthcare Real Estate Trends Signal Positive Changes for Investors and Property Managers

February 24, 2023 • Rhonda Smith

Healthcare real estate will continue to offer “tremendous opportunity” for investors seeking options, especially as ambulatory surgical centers (ACSs), rehabilitation and behavioral health segments grow in importance, a new JLL report notes.

This boom in medical real estate also poses more stretch assignments for pro-active property managers, Erik Hill, the Dallas-based managing director of Healthcare and Life Science for JLL’s Valuation Advisory group, told BOMA International. They should be knowledgeable about the unique factors that affect healthcare assets, he says, from high-volume foot traffic to unique construction protocols.

I don’t see anything in the near term that would substantially alter the investment landscape for healthcare assets,” Hill says. “We have an aging population that is spending more and more on healthcare each year.

“By 2030, all baby boomers will be over the age of 65,” Hill notes. “This ever-increasing need for healthcare services and healthcare property doesn’t appear to be slowing down any time soon.”

Healthcare has been a resilient industry that is still very much non-investor owned, Hill explains, noting that it presents plenty of opportunity for providers or healthcare systems to monetize their real estate holdings in the years to come.

The inaugural Healthcare Investor Survey and Trends Outlook report includes feedback from 129 transaction professionals, described in the report as some of the most influential leaders in the healthcare sector.

The report notes that healthcare transaction volume reached a record-high in 2022 with about $26 billion invested in that sector. Investors continued to be attracted to medical office buildings, which at 58% comprised the largest portion of investment in 2022.

The report notes that 66% of survey respondents said medical office buildings would remain the largest investment opportunity in 2023.

It also points out, however, that “with the shift to more and more outpatient care, ambulatory surgical centers (ACSs) comprised a larger portion of sales, representing 27% in 2022 compared to approximately 20% in 2021.” Respondents predicted that ACSs would be the second largest investment opportunity this year.

MOB occupancy has proved resilient because most people seek most of their medical services in-person, the report says.

“While traditional office is adjusting to new hybrid work expectations, in-person visits still account for 90% of all visits,” it adds, “with telehealth declining from a peak of 54% during the pandemic to 10% of all visits.”

“During the COVID recession, national MOB occupancy did not drop much and is 11.4% higher than traditional office space,” the report notes, explaining that medical office tenants tend to remain in the same space for longer because of “the high cost to build out a medical office space and proximity to patients.”

The report also says that, fueled by strong occupancy growth, medical office asking rent has been rising by 2.29% on average for the last two years. Meanwhile, overall office market rents have increased by 1.9% on average in the same time frame.

For property managers in the healthcare sector, Hill says the “the best thing to do is to stay up-to-date with the latest trends in healthcare, specifically the continued move to outpatient care.”

During the last 10 to 15 years, there has been a significant shift to more and more surgeries taking place outside of hospital settings, he notes. Property managers should be familiar with how medical facilities operate and what specialized components may exist, including “med gas, specialized HVAC, sterile corridors and others.”

Property managers should be knowledgeable about the unique factors that affect healthcare assets, Hill advises. These include, but aren’t limited to, high-volume foot traffic resulting in increased wear and tear, an increased need for additional janitorial/restroom maintenance, and higher standards of cleaning/disinfecting. Faster maintenance response time and unique construction protocols to minimize the impact on patients also will be increasingly important.

ABOUT THE AUTHOR: Rhonda Smith is BOMA International's Editor and Content Writer.