The Future of the Healthcare Real Estate Market

The Future of the Healthcare Real Estate Market  

The healthcare industry is one of the biggest employers in the United States. Because of significant  growth in this sector, new construction for this fast-growing industry has been unable to keep up.  Healthcare has moved away from traditional hospital stays to outpatient care, and this evolution is the key reason for the demand in medical office commercial real estate. These new ways of serving patients takes doctors from giant hospitals to more modest commercial real estate.

Many hospitals and healthcare systems began a shift to deliver care to more patients in a safe, efficient, and cost-effective way to meet the demands of a growing population. Healthcare customers count on greater availability and a better experience when visiting healthcare facilities. In response to this need, healthcare organizations are on the move to develop healthcare facilities that are easier for patients to access. In the past, the delivery of patient care occurred at a physician's offices or hospitals. But the need for secondary healthcare locations for these organizations required the purchase of the additional real estate. Now, the healthcare commercial real estate picture is beginning to change.

While members of the healthcare field find themselves in the middle of a mind shift towards efficient and cost-effective healthcare, they find themselves looking to an unlikely source for inspiration: the retail industry. This inspiration is helping healthcare workers bring more accommodating and affordable care to patients. In an environment of continuous change, those in the healthcare field have found that providing their patients with optimally located healthcare clinics and providing a tailored mix of services to their patients, allows them to provide a better experience to their consumer.

Inpatient Hospital vs. Outpatient Migration for Medical Procedures

Patient choice and financial incentives precipitated a shift in offering procedures at outpatient healthcare settings that are more cost-effective. Also, innovations in medical technology became a key driver of this growing trend. Many surgeries, medical procedures, and diagnostic tests that once required a patient hospitalization are now being performed safely and more cost-effectively in outpatient settings thanks to the advancement of non-invasive surgical technology breakthroughs in medicine.

Both laparoscopic and robotic surgeries and new anesthesia techniques allow patients to receive these services quicker, return home the same day, and now experience reduced complications. Also, the list of surgical techniques and medical procedures that no longer require an inpatient hospital stay increased. In 2018, six medical procedures no longer needed overnight hospital care. In 2019, the list of surgical techniques and medical procedures grew to include 12 cardiac diagnostic procedures and five ancillary procedures. In all, around 1,700 require inpatient stays at the hospital. More and more medical procedures no longer require inpatient hospital care after the procedure. Technology will only continue to improve, which means the need for outpatient facilities will continue to grow as well.

Community Healthcare Clinics  

Healthcare is shifting more toward outpatient care services, and is happening in concurrence with the rise of younger families and their specific healthcare needs. Rather than taking place at large hospitals or medical office buildings, urgent healthcare is moving out into the community, with retail clinics and urgent care clinics. These new medical facilities are now located in neighborhood communities where those who require critical care no longer need to travel to the emergency room, but urgent care centers in their community. As people begin to look for a provider of healthcare, convenience changes the dynamic.

Urgent care facilities have also become popular with the uninsured because their middle-ground price point (less than an emergency room but slightly higher than a physician's office) is a price they are willing to pay. Those who are insured also find the cost of urgent care facilities much cheaper than emergency rooms. Instead of paying $250 for an emergency room visit, the out-of-pocket expense hovers around $60.  

The End of Real Estate Investment Trusts

Although the need for hospitals will always exist, medical offices are the heart of the healthcare system. Medical office buildings are emerging as one of the most popular types of real estate investments and show no signs of slowing down. The stability of the healthcare niche in commercial real estate buildings has brought on a massive wave of investors drawn to the prospect of a healthy return on their investment. Real estate investment trusts dominated medical real estate transactions in years past. However, today's pool of investors is more diversified and see the benefit of growth in medical office real estate. Real estate investors who choose to include outpatient care and medical office real estate in their portfolios can anticipate accelerated growth across nearly every U.S. market.

Medical office buildings account for 10% of all U.S. office space. Still, unlike other commercial real estate niches, medical practices continue to be stable and offer more consistent income growth compared to the others. Commercial real estate, specifically geared toward the healthcare industry, is a popular choice for investors. This industry includes large healthcare systems, independent physician practices, and outpatient centers, and they are fueling the demand for specialty healthcare real estate property. By adding separate facilities for specialized medical practices in retail settings, their real estate portfolios become even more diverse.  

The traditional model of receiving healthcare has evolved. Health care services are now more accessible, convenient, and medical practices strive to make the experience more patient-friendly. Under these new delivery models, the convenience and comfort of the patient are at the forefront. We now exist in a society where the overall arching goal is to keep the general population of people healthy and well. To achieve that goal, the delivery of exceptional healthcare must be cost-effective, and providers must pay attention to patient satisfaction. Diverting some medical services away from the traditional setting to accessible commercial real estate buildings closer to where people live and work, can only help achieve that goal. Healthcare spending expects to grow to nearly $2 trillion in the next decade, so it's even more critical to provide and deliver safe, effective healthcare as efficiently and cost-effective as possible. IAG Commercial expects medical office buildings and retail focused strip centers will have  a vital role to play in re-imagining a more efficient, convenient, accessible healthcare system.


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