- February 12, 2019
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Written by: Alec Butterfield | Associate Advisor
To begin my series of personal insights into specific sectors of the commercial real estate landscape I will start with medical real estate. Personally, I find medical real estate to be an everchanging landscape that serves a large scope of healthcare services. Whether you currently own medical real estate or are planning to invest, I will justify why I believe medical real estate is the right sector for your investment dollars in 2019.
Why is Medical Real Estate So Popular?
Medical Real Estate is such a strong investment vehicle within the real estate industry because of the world we live in. From the Baby Boomer generation exiting the workforce to the politics of Universal Healthcare, the healthcare industry is something that will always have an impact on your life. Everyone wants to live a strong, fruitful, and long life. Healthcare advancements are trying to grow as fast as they can in order to accommodate the population. As we grow older by the day, healthcare providers are scrambling to serve their aging community, which means they are looking for space. Healthcare providers have such high competition that location, convenience and proper services are some of the highest priorities to them in terms of serving the community. That goes for Louisiana as much as it goes for Maine. These large healthcare providers know that in order to beat out competition, they must be able to offer their community the best services with the best locations. This high amount of competition among healthcare providers is one of the reasons that medical real estate is so popular. Healthcare providers are located in areas with high traffic density, high populations and easy accessibility, meaning that this is what you want to target when searching for medical real estate to invest in.
Why Should You Invest in Medical Real Estate?
Of course you may ask yourself “Why do I need to invest in medical real estate?” or “I already own medical real estate, why do I need to invest in more?” Here is the reason: THE HEALTHCARE INDUSTRY IS A JUGGERNAUT! This industry will never stop growing. You hear in the news that one day Amazon may get involved in Healthcare. I remember when Amazon used to be a used book seller, and now look at it today. If Amazon has eyes on the Healthcare industry, that is a major indicator of where the world is moving. With the population growing older every day, the demand for healthcare services grows with it. That demand for healthcare services correlates with demand for more space from healthcare providers, which means that rental rates will increase and medical developments will have to increase the supply.
Medical real estate is primed for long-term growth and high competition, which positively impacts the value of medical properties. Additionally, medical tenants take care of their spaces and often times invest money into the building in addition to occupying the property, which can increase the value even further. Healthcare providers are willing to pay top dollar for best in class spaces, best in class buildouts, and best in class service. Also, there are very few drastic externalities that can impact the medical real estate sector such as E-Commerce and the “Retail Apocalypse”. The largest externality that affects medical real estate is healthcare laws signed by Congress, which has more of an impact on the healthcare providers than the real estate itself. Some could say that the healthcare sector is recession proof, but that is a different discussion. Overall, medical real estate is worth investing in due to the long-term growth of the healthcare industry, the competition that healthcare providers have amongst one another, as well as the direction in the way the world is moving.
Why Should You Sell Your Medical Real Estate?
Don’t take the above information as advice that you should never sell your medical real estate. Supply comes from somewhere, and that includes your own property. Based on the law of supply and demand, when supply is low and demand is high, the price of the item drastically increases. Investors want more medical real estate. Healthcare providers want more locations to service the community. The demand is there and is not going away any time soon. According to the Editorial Advisory Board (EAB), “Medical real estate investment sales and development should remain strong in the near future because of continued strong demand for the property type from a growing range of investors.” (HREIRG 12). Medical investors can’t get enough of these properties. The demand is likely to remain strong for the coming years because the healthcare industry is drastically growing to meet the needs of the communities they serve. Of course, you may not wish to sell your medical real estate but with such a high demand your property may command a higher sales price than you expect. A simple market analysis can provide you clarity on what your medical real estate is worth to the market. If that is something of interest to you, give me a call and we can discuss further.
To wrap up, medical real estate is a great investment vehicle for any investor, whether you are institutional, a private fund or a single investor. The world is moving in a direction with healthcare as a major focus. Everyone needs or will need healthcare services at some point in life (unless you’ve found the fountain of youth!). In order for healthcare providers to best serve their communities, they will demand space that puts them in the best situation. If you already own medical real estate, I congratulate you on getting into the market and would advise that you continue to grow your medical real estate portfolio. If you haven’t already gotten into the medical real estate market, I hope that this has given you some insight and thoughts on investing in the future. If you wish to invest in the market, have a market analysis done for your property, or have any questions about investing in medical real estate, give me a call!