December 2, 2019 Comments Off on 3 Trends that Shaped Healthcare RE in 2019 Views: 1417 Healthcare News

3 Trends that Shaped Healthcare RE in 2019

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As 2019 comes to an end, a new report from JLL outlined three trends that shaped healthcare real estate this year. Here, Connect Healthcare shares the highlights from the firm’s Healthcare Real Estate Outlook: Prognosis for Growth.

1. Healthcare industry’s undeniable economic force

With more than 20 million Americans employed in healthcare and social assistance, the healthcare industry is not only the nation’s largest employer but also one of the fastest-growing sectors of the economy. Healthcare employment has growth by 23% over the past decade, according to the Bureau of Labor Statistics (BLS), and the healthcare sector was responsible for 16.9% of all job creation in the last decade.

National healthcare expenditures are projected to grow to $5.7 trillion by 2026, according to the U.S. Centers for Medicare & Medicaid Services (CMS). With an average annual growth rate of 5.5%, healthcare spending will reach a projected 19.7% of GDP in 2026.

Continued population growth will contribute to healthcare demand, according to JLL. By 2060, the U.S. will add another 79 million people. And during that same period, the American population over 65 years of age is projected to almost double, from 50 million to nearly 95 million. On average, people over the age of 65 spend five times more on healthcare than their younger counterparts.

By 2060, the U.S. population will cross the 400 million threshold and one in four will be over the age of 65

2. Technology is pushing more healthcare services outside hospital walls.

According to JLL’s report, “the evolution of healthcare away from traditional hospital campuses is gaining momentum as new technology has become a key driver in the shift to outpatient care.”

While the firm acknowledges that patient preferences and financial incentives have contributed to the shift away from high-cost hospital settings to more cost-effective outpatient locations, JLL also points out that innovations in technology are adding momentum. For example, many surgeries and medical and diagnostic procedures that once required an inpatient stay can now be performed safely in an outpatient setting and new anesthesia techniques that reduce complications and allow patients to return home sooner.

In fact, the migration from inpatient to outpatient care—which has been ongoing for the past two decades—has contributed to a decrease in the national occupancy rate for hospitals from 77% to 61% since 1980, according to the Medicare Payment Advisory Commission. This trend means that providers are increasing including outpatient and urgent care centers or smaller-scale micro-hospitals and health-system sponsored wellness centers in their real estate strategies.

3. As demand for outpatient care has steadily risen, so have MOB fundamentals

Medical office real estate is performing well across nearly all U.S. markets, despite economic concerns about an imminent recession and the upcoming presidential election. Since 2015, this sector has held occupancy consistently between 92% and 92.5%, according to JLL.

“Occupancy rates are expected to remain stable for the near future, with limited room for growth given the presently high rates,” the report states, adding that MOB rents have grown 21% peak-to-trough from the low of $18.92 in the second quarter of 2012.

To that end, steady demand has kept net operating income stable through the recession and has kept NOI growth trending upward in recent years.

Rising investor confidence in the MOB segment has attracted new investors. In 2014, REITs drove 60% of medical real estate transactions, compared to 16% by hospitals and health systems.

“Today’s buyer pool is better distributed, with new investors attracted by the stable growth in this sector,” according to JLL’s report.

Read More at JLL

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For questions, comments or concerns, please contact Jennifer Duell Popovec

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