Healthcare Real Estate Will Continue to Feel Hardly Any Pain

January 27, 2023 • Rhonda Smith

From medical office buildings to life sciences, healthcare real estate is positioned for continued success as 2023 begins, various sources said. Among them, Gensler, the architecture and design powerhouse, shared five predictions it said will influence the industry this year and beyond.

The U.S. health care system supports an insured population of more than 300 million people and represents more than 18 percent of U.S. gross domestic product, noted the 2023 edition of Emerging Trends in Real Estate, the go-to tome PwC and the Urban Land Institute release each year.

“Looking ahead, medical office transaction activity will face the same headwinds— rising interest rates, inflation, and a potential recession—as other real estate,” it noted. “However, with so many entities interested in investing and solid sector fundamentals, future activity will likely remain strong.” At the end of 2021, there were more than 36,000 medical office buildings (MOBs) in the U.S. comprising more than 1.6 billion square feet of space, the report pointed out, adding that this amounts to about $498 billion in market value.

Who Owns Most of the Sector?

In terms of square footage, more than half of the sector is owned by users of healthcare real estate: hospitals, providers and physician groups, RevistaMed said in the latest Emerging Trends report. The remainder is held by real estate investment trusts (REITs) and private investors. “This represents a substantial amount of opportunity for investors to take on more ownership,” it said.

JLL pointed out in the report that the life sciences industry also is flourishing, surrounded by “record levels of venture capital funding, continued investments in research and development (R&D), and burgeoning investment in local ecosystems that will bolster long-term industry expansion in core clusters and emerging markets alike.”

CBRE predicted on its website that life sciences markets will “normalize” or “moderate” in 2023 as a result of a predicted economic slowdown.

“Nevertheless, the market should remain relatively resilient,” the firm said. “Pandemic-fueled demand and capital infusion will give way to more normal market conditions, with better opportunities for occupiers.”

In addition, CBRE said new construction will increase supply in the most sought-after lab/R&D markets of Boston-Cambridge, the San Francisco Bay Area and San Diego. “Other markets with less new construction will experience more stable supply and demand trends as the long-term expansion of life sciences endures,” it said.

Healthcare Design Changes Predicted

Separately, Gensler, the global architecture, design, and planning firm, offered five predictions it said will influence healthcare real estate in the coming years.

  • The evolution of clinical technologies will decentralize consumer access to care. “The increasing capabilities and operational simplicity of clinical technologies allow formerly complex procedures, such as hip replacements, to be delivered in outpatient healthcare settings,” it said. “The resulting healthcare real estate trend will be to migrate clinical services, to the greatest extent possible, from hospitals to primary- and secondary-service areas in local communities.” 
  • Now is the time to build resilient systems to withstand major climate events. “Sustainable real estate strategies will protect investments in health systems, reduce risk, and empower providers to support their communities in the immediate aftermath of such events,” the firm said. “Such strategies will also reduce the healthcare industry’s notoriously high energy usage and help address the climate crisis at its root cause.” 
  • Research will drive changes in healthcare experience design.  
    “The experiences of staff and patients are equally important, and healthcare providers are demanding data-driven real estate solutions that cater to both groups,” Gensler said. “On the provider side, investing in the wellness of workers will help address retention challenges, especially among nursing staff. On the consumer side, providers will need to offer more convenient and comprehensive care, so they don’t lose market share to other organizations.” 
  • Telehealth is here to stay, though not replace in-person interactions, which will define the industry’s future. “Though telehealth will continue to play a significant role for some forms of care, such as psychiatry,” the design firm said, “in-person interactions that require access to specialized technology will continue to comprise the overwhelming majority of healthcare interactions.”
  • The lines between physical and digital healthcare delivery will continue to blur, requiring flexible spaces. “Physical, in-person care delivery will continue to integrate with platforms designed for virtual consumer engagement and telemedicine,” Gensler said. “But this integration will be uneven over time, because healthcare technologies will emerge in a piecemeal fashion, meeting some needs before others.”
ABOUT THE AUTHOR: Rhonda Smith is BOMA International's Editor and Content Writer