Often called a recession resistant industry, medical real estate is doing well and experts concur that it will continue to blossom. Such lead authorities as Marcus & Millichap, which recently published their October medical real estate report, confirmed long term growth as healthcare employment rose (2.2%), medical office vacancy rates are down, a surge in outpatient facilities and, especially, the growing 65 plus age group resulting from the aging baby boomers.
It was baby boomers that caught my attention as there is much speculation for them as a main driver of medical real estate demand. There is good reason for this assumption too as this demographic is expected to grow by 36% over the next 10 years and are more frequent users of medical services making future development a prosperous reality.
While the demand may exist, I would hesitate before jumping on the baby boomer bandwagon.
The approach of “if you build it they will come” linking potential market direction to a sooner approach may be a non sequitur. The dynamics of medical real estate development are more sophisticated. If you build it they may come or they may not. Quality, long-term, mission-driven, strategically-planned development requires diligent foresight into the universal needs of healthcare recipients beyond targeted demographics.
Overzealous, opportunistic, less experienced “players” with substantial capital resources and ambitious expectations are rushing into the medical real estate market. Nonetheless, industry savvy veterans, internal to system operations and educated in the broader spectrum of medical real estate investment, are highly optimistic yet cautious. These longer term vested principals know that the physicians and hospitals drive real estate demand, and those groups are extremely tentative to the structure of reimbursement and future health delivery models.
The children of our “greatest generation” are quickly becoming the most dependent recipients of healthcare services. Baby boomers will be a contributing factor, but not the cause for development of healthcare facilities throughout the next decade and beyond. Hospital executives need to strategically assess the demands in their market as overbuilding can be as much of a downfall to an effective plan as underdevelopment.
To view the entire Marcus and Millichap report see here.
James Ellis, CEO, Health Care Realty Development Company, is a nationally recognized successful real estate investor and developer of medical office properties with a comprehensive knowledge of sophisticated real estate transactions, cost effective designs, and efficient property management.
Aaron Razavi is Associate Marketing Director at Health Care Realty Development.
Visit their blog at http://www.hcrealty.com/medicalrealestatedevelopment/