The healthcare segment of the real estate industry faced monumental challenges during the pandemic, as hospitals and medical offices grappled with overflow. But as we regain normalcy, the healthcare sector shows its resilience. Historically, it has been characterized by its slow and steady growth, shielded from the volatility seen in other real estate asset classes. Its foundation lies in the ever-present demand for medical care.
Today, we find the sector's fundamentals described as "relatively healthy", especially in areas such as medical offices which are witnessing low vacancies and rising rents. Shawn Janus, National Director of HealthCare at Colliers, highlights how the sector is diversifying its capital raising mechanisms given the higher interest rates and challenges associated with bond financings.
One of the significant drivers for sustained demand in this sector is the demographics. By 2060, the older adult population (65+) is projected to double from 46 million to a staggering 98 million. This, combined with people migrating to states with favorable conditions like Texas, Florida, Tennessee, and rapidly growing markets like Phoenix, signifies robust growth prospects.
However, challenges persist. The healthcare sector is grappling with changes in billing due to the rise of virtual telehealth, which has seen a significant surge from pre-pandemic levels. Further complicating matters is the staffing crisis, with shortages and potential burnout threatening the industry's efficacy. But there's a silver lining: the increasing integration of artificial intelligence, which holds the potential to streamline administrative tasks and improve efficiencies.
Janus's advice for those eyeing opportunities in this realm? Look for strong credit occupiers, strategic locations near patient clusters, and understand the nuances of insurance reimbursement.
So far, the adaptability of the healthcare real estate sector is commendable. As we navigate the ever-evolving landscape, let's see what the future unfolds for this resilient sector. What are your thoughts on how the sector can further innovate and thrive in the coming years?
Written by Ben Meir