Best Ways to Invest in Healthcare Real Estate

Best Ways to Invest in Healthcare Real Estate

Like most of the niche commercial real estate markets, the medical office space has found stability in the post pandemic era. Many signs are pointing toward lucrative growth in the healthcare real estate market.

In certain markets, investors in medical office buildings are reporting rent growths upwards of 10% or 15%. With a combination of strong financials and the growth expectation around the healthcare industry overall, it’s no wonder as to why investors are flocking to the space.

In today’s article, we take a deep dive into why healthcare real estate has become so prominent amongst investors. We’ll also cover why more and more of today’s medical professionals are investing in medical office spaces of their own.

How does the Healthcare Real Estate Market look in 2022?

Investment in the healthcare space struggled to keep pace throughout the pandemic – as did most capital markets. With that being said, the necessity of the industry allowed the market to recover faster than expected. On the subject of rent, 95% of medical facilities continued to pay their rent throughout the pandemic, as compared to only 85% across renters in other markets.

Diving into some more specifics, it isn’t hard to see why investors and economists alike are finding a positive outlook for healthcare real estate.

  • 16% projected growth for employment in healthcare between 2020 and 2030.
  • 47% of healthcare companies in 2022 have already put plans in to expand their physical facilities heading into next year.
  • 61% of high growth companies report prioritizing capital allocation for the healthcare space.

A certain amount of this expected growth can be attributed to the need for more medical infrastructure, as exposed during the pandemic. However, a deeper reason fuels much of the positive speculation in the space.

As more and more of the baby boomer generation requires advanced access to healthcare, providers will be forced to make accommodations. In 2000, the Medicare-eligible population in the U.S. numbered only 35 million. By 2030, that same demographic is expected to number 70 million. Costs around the medical industry as a whole will increase, but likely so will the rate of growth for investments in medical office buildings (MOB).

Is Investing in Healthcare Real Estate a good idea in 2022?

Investors and medical professionals alike have been prioritizing capital allocation in healthcare real estate. In addition to the statistics mentioned above, the healthcare market has a couple of key factors backing its lucrative growth projections.

Healthcare Technology

Headlining technology in the medical field is telehealth. Medical professionals across their respective fields have made telehealth an intricate piece of their practices. According to one source, the usage of telehealth is nearly 40 times higher than it was before the pandemic.

Contrary to what the word may imply, telehealth doesn’t simply allow medical professionals to conduct business over the phone. Telehealth appointments currently require offices or flex spaces that are outfitted with appropriate technology in order for physicians to virtually converse with their patients. The expansion of telehealth explains much of the investment buzz around medical office buildings.

Biotech and Life Sciences

The biotech and life sciences space has become a major portfolio piece in the majority of today’s investors. From Elon Musk’s Neuralink to TMRW Life Sciences, there is no denying the excitement and anticipation for growth in new innovations.

To meet the demand for new technologies, investors and medical professionals are outfitting more medical office buildings as premiere laboratory spaces. Vacancy rates in the biotech/life science laboratory space has been reported to be as low as 1.7%, which explains much of the excitement in the investment area.

Healthcare Real Estate for Medical Professionals

Investing in Healthcare Real Estate isn’t left only for experienced investors. More and more medical professionals, especially those who own or operate a private practice, are benefiting from investing in the building(s) they operate in.

There are a few different options all medical professionals should consider before investing in a medical office building.

1. Direct Ownership

Many private medical practitioners will find value in the direct ownership route. Owning your own medical office building comes with the obvious management/oversight advantages. It also offers a unique opportunity for healthcare professionals to expand their investment portfolios into real estate while staying in an industry they are familiar with.

For those who desire to own and operate their practice, it’s essential to consider the location, access to utilities, parking, common amenities, and any other factors that could influence the risk of the investment.

Benefits of direct ownership in healthcare real estate:

  • Equity – Why pay rent to someone else when you could own the building yourself?
  • Fixed Costs – Owner/operators of private practices won’t be exposed to changes in operating costs unless it’s by their own accord.
  • Improved Recruitment – It’s possible to weave in liquidity events into recruiting for retiring physicians.
  • Financial Benefit – Owning your practice’s building adds immediate value to the business as a whole and allows medical professionals to access lucrative appreciation in the field of commercial real estate.

2. Partnerships

A partnership with real estate experts or a group of other medical professionals is a fantastic option for those looking to diversify their portfolio outside of their own practice. By partnering with other individuals in the space, you’ll gain access to more capital, which can expand the type of medical office space you are able to invest in.

Benefits of partnerships in healthcare real estate:

  • Diversified Investments – access to biotech space, advanced laboratories, increased office space, etc.
  • Liquidity – While the ownership is only partial, investors will have more access to cash flowing assets.
  • Appreciation – Better yet, diversified appreciation across different niches in healthcare real estate.
  • Reduced Risk – Partnering with experts in the industry can do a lot for your confidence in the investment, not to mentioned reduced liability through refinancing options.

Are You Ready to Invest in Healthcare Real Estate?

Whether you are an owner/operator of a private practice or are simply a healthcare professional ready to diversify your portfolio, it can be difficult to get into healthcare real estate on your own. The good news is that the ICRE Investment Team is equipped with everything necessary to advance your investments in the space – no matter what direction you want to take them.

Are you looking for a smaller medical office building to invest in – something you could oversee yourself? Are you looking to take advantage of the benefits of a partnership? There is no denying the opportunity in the healthcare real estate market. If you are ready to find out more about how you can get involved in the space, feel free to reach out for more information. We’re happy to help!