Healthcare real estate is a needs-based asset class that has historically been viewed as an alternative investment option. However, undeniable trends associated with aging demographics, increasing personal expenditures on healthcare services, and rapidly developing advances in scientific technology place healthcare real estate squarely among the core real estate assets in future portfolios.
Traditional real estate holdings are no longer safe bets
Trends aren’t the only thing pointing toward healthcare real estate as a solid investment option. Another bellwether is the ongoing destabilization of traditional asset classes — office, multifamily, and retail.
These historically core asset classes are struggling. Take the office market. Its value has been cut in half since 2020. These properties are extremely expensive — and yet sit empty. Very few people are regularly commuting to work. Even markets like Chicago and Los Angeles where we thought we understood the typical working environment will never be the same in our post-COVID world.
The challenges of the multifamily sector are not as obvious. However, apartment buildings are significantly overbuilt and overleveraged, making them equally as unreliable from a current investment perspective. The performance projections around these multifamily assets, even compared to a few years ago, simply do not hold up.
Meanwhile, brick and mortar retail faces the well-known challenge of competing with Amazon and other online retailers. Consequently, retail assets are no more stable to invest in right now than multifamily or office.
Healthcare real estate: from alternative asset class to stable investment
Again, healthcare real estate typically has been seen as an alternative asset class. Research is not as readily available on its returns. A simple Google search reveals local rents to help investors calculate their potential profit in the multifamily space. But you cannot necessarily conduct the same search on a medical outpatient facility; the data is not readily available. Furthermore, virtually everyone has lived in an apartment building. So, multifamily properties have been viewed as an easier asset class to grasp than healthcare real estate.
No matter the reason for healthcare real estate’s alternative status, there’s no denying the asset class is maturing. Amid turbulence with more mainstream investment opportunities, investing in healthcare real estate is an ideal strategy to balance your investment profile for more predictability.
5 reasons to diversify your portfolio with healthcare real estate
Healthcare real estate encompasses various types of asset classes, including senior living communities, medical real estate facilities, and research labs for science and technological discoveries of all kinds. Investing in any of these assets comes with benefits.
1. Investing in the right healthcare real estate is more straightforward than many think
If the thought of dealing with a highly regulated asset class is what’s keeping you from backing healthcare real estate, don’t let it. You’re missing out on a high-value investment opportunity.
It’s true that asset classes like multifamily have traditionally been seen as easier to understand and assess from an investment perspective. But make no mistake: Healthcare real estate is in no way an inaccessible investment opportunity. Why? Because the kind of investing we’re discussing here is not wrapped up in dizzying government regulations and insurance red tape.
Some investors avoid healthcare real estate thinking they’ll have to navigate medical reimbursement, including Medicare and Medicaid standards, which seem to change from year to year and administration to administration. However, the most complex regulatory hurdles come with investing in high acuity hospitals and skilled nursing facilities — not from investing in medical outpatient buildings, senior living communities, or research facilities.
To put a fine point on it, you can and should invest in the growing medical real estate space without dealing with the regulatory complications inherent to our healthcare system. The healthcare asset classes that NexCore deals in are not subject to the same level of government scrutiny or insurance officialdom.
2. The demand for outpatient care calls for new investment
The healthcare industry is beginning to feel more like retail. Patients want visiting their care providers to be as convenient as going to Target — and preferably in the same shopping center. People understandably do not want to wayfind to a hospital campus when they can instead have their low-to-medium acuity procedures and everyday medical needs met along their typical trade route. As a result, health systems are evaluating their ambulatory care networks and looking to expand their market share in high-growth markets.
All to say, this boom in medical outpatient buildings — which also feature high occupancy rates — marks an ideal moment for investment in them. There’s even a projected increase in U.S. healthcare spending to further buoy this asset class.
3. There’s a compounding need for building and investing in senior living communities
Medical outpatient buildings and ambulatory care centers aren’t the only healthcare facilities in greater demand. The senior population in the United States has and continues to grow exponentially. Consequently, there’s a projected requirement for 806,000 senior living units by 2030, and much of the existing properties are in desperate need of updates. Seniors also have a high need for medical services in all sorts of settings, including medical outpatient buildings.
Senior living got bad press during the COVID-19 pandemic. That’s undeniable. But the senior living sector is back and stronger than ever. It needs investment to meet population demands
4. Scientific innovation can’t happen without innovative facilities
Medical discoveries are crucial in healthcare, and future breakthroughs require infrastructure. That’s why there is a need for more science, research, and tech buildings, especially in academic settings.
There’s an intersection between academic research and healthcare. Many technological and scientific advances are incubated in an academic setting in tandem with a university or an academic healthcare system.
It’s not just that scientific discoveries matter to progressing the healthcare field. Universities themselves place great importance on having top of the line research facilities that can earn coveted designations that foster monetary grants and improve recruitment and retention. As a healthcare real estate investor, your opportunity lies in supporting the development of this infrastructure.
5. You can feel good about healthcare real estate investment
Investing in the healthcare sector is a mission-driven pursuit. The buildings we construct and the communities we create are critical to the delivery of imperative healthcare services that impact all of our lives.
Put another way, your investment in healthcare real estate is, uniquely, one that will change the world.
Healthcare real estate is a core asset class of the not-so-distant future
Market realities mean it’s wise you’re considering investment opportunities beyond the struggling traditional real estate assets. Give healthcare real estate a chance as you look to diversify your portfolio.
The sector has long-term growth potential, and there’s high-demand for more infrastructure. It’s no wonder that, more and more, healthcare real estate is being considered a secure investment play.
To learn more about partnering with NexCore Group for your healthcare real estate investment, contact us today.
Written by: Michael Ray, Chief Investment Officer and Jeremy Allen, VP, Investment Research