The ICRE Investment Team attended the annual GlobeSt. Healthcare Conference, where leading industry professionals discussed the evolving dynamics of healthcare real estate. Here are the primary insights and takeaways:
1. Economic and Market Insights
• Economic Resilience: Despite expectations of a recession, GDP growth for 2024 is projected at 2.7%, reflecting strong economic performance. The Federal Reserve continues to target a “soft landing,” although interest rate cuts are proceeding slower than anticipated.
• Labor Market Trends: Job creation remains robust, with healthcare accounting for 40% of new jobs in the past year. However, significant labor shortages persist, with 730,000 unfilled healthcare positions, impacting operations and wage inflation.
2. Healthcare Real Estate Trends
• Demand Drivers: An aging population (11,000 people turn 65 daily) and rising outpatient care utilization are fueling demand for medical office buildings (MOBs) and healthcare facilities, particularly in Sunbelt markets like Phoenix, Texas, and Florida.
• Construction Challenges: Rising construction costs and limited new development create opportunities for existing assets to retain strong demand. Developers face difficulties justifying new projects despite favorable market fundamentals.
3. Investment Opportunities
• Institutional Interest: Healthcare real estate, particularly MOBs, is drawing significant attention from institutional investors due to its stability and higher yields compared to traditional office spaces.
• Cap Rates: Best-in-class assets with long-term leases and strong tenant credit are trading at cap rates in the low to mid-6% range, showcasing continued investor confidence.
• Shifting Capital: Investors are reallocating funds from struggling sectors like traditional office and industrial to healthcare real estate, with a growing focus on outpatient facilities and smaller medical assets.
4. Regulatory and Long-Term Considerations
• Labor Shortages: Persistent shortages in physicians, nurses, and other healthcare professionals could limit tenant operations and facility performance.
• Technology and AI: Innovations in healthcare delivery, including AI-driven efficiencies and outpatient trends, are reshaping real estate needs. Smaller, more efficient footprints are becoming the norm for medical offices.
• Aging Facilities: Hospital systems are increasingly monetizing older assets to reinvest in higher-yielding, modern facilities. Sale-leaseback activity is expected to grow as systems seek liquidity.
5. Geographic Highlights
• Sunbelt Dominance: Markets like Phoenix, Dallas, and Florida continue to lead in population growth and healthcare real estate demand. These areas offer higher yields and opportunities for development compared to more saturated northern markets.
• Vacancy Rates: Southern markets experience higher vacancy rates due to easier development, while West Coast and Northern states face tighter supply due to construction constraints.
6. Future Outlook
• Capital Deployment: Significant dry powder remains in the market, with investors eager to place funds in healthcare real estate despite ongoing interest rate uncertainty.
• Consolidation and Mergers: As smaller healthcare systems struggle financially, larger systems are expected to consolidate further, impacting facility ownership and leasing strategies.
• Technology’s Role: Over the next five years, advancements in healthcare delivery and real estate management—driven by data and AI—will significantly influence space utilization and investment decisions.
The GlobeSt. Healthcare Conference underscored healthcare real estate’s role as a resilient, high-demand sector driven by demographic shifts and evolving healthcare delivery models. For additional details on the agenda and speakers, visit GlobeSt. Healthcare 2024 Agenda.
The ICRE Investment Team is active in the Phoenix Market we work with Medical practitioners, investors and Tenants in expanding their medical footprint in Arizona . We have medical development projects underway in Arizona in San Tan Valley near Banner Ironwood, another in Queen Creek, and a 10-acre development near Mercy Gilbert Hospital. Contact us today to learn more about these exciting opportunities and how we can help you find the ideal location for your practice’s expansion or investment needs.
