The Weave

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Today’s Market for Health Care Real Estate

Joel L. Naroff, Ph. D.
By Joel L. Naroff, Ph. D.

While the health care debate is focused on the repeal, replacement or maybe even the repair of Obamacare, there are other implications of the changes in health insurance that have already have altered the health provider physical landscape.  The need to limit costs is forcing people out of traditional locations into lower cost facilities, such as urgent care and surgical centers.  That is changing the face of the health care service environment and creating opportunities for real estate investors.

Interestingly, rising health care expenses have created opportunities for providers and insurers to limit those costs.  One of the most important responses has been the development of non-traditional care locations.  Urgent care, surgical care, and outpatient clinics are cropping up everywhere, and there is little reason to expect that trend to slow anytime soon. 

The large number of people added to the insurance rolls by Obamacare caused demand for all types of health services to soar. Insurers were forced to find ways to reduce costs.  Meanwhile, providers needed to reach the growing number of patients flocking to lower cost settings rather than hospitals.  This made it a perfect environment for offsite facilities. 

When there is a void, entrepreneurs fill the need.  The number of Urgent Care Centers jumped by 10 percent last year, after having increased by nearly 12% in 2015.  There are now roughly 7500 urgent care centers in the nation. Double-digit center growth might not be sustained, but the gains likely will remain large.

Urgent and primary care providers already make-up a major portion of the workforce and their importance will only expand.  The American Academy of Urgent Care Providers estimates that more than 20,000 physicians are in urgent care practice.  Another 20,000 primary care doctors may be needed in the next decade, and many will be in urgent care.  

And if that is not enough, the number of workers in outpatient care keeps exploding.  This segment now employs more than 900,000 workers, a 6.1% increase in just one year; this is nearly four times faster than total payroll growth. 

Whether it is urgent care, surgical care, or outpatient locations of any type, capital is flowing rapidly into the private, health care real estate sector.  Over the past three years, construction activity has exceeded $11 billion annually, for medical and special care buildings. 

The need to limit costs is forcing people out of traditional locations into lower cost facilities, such as urgent care and surgical centers.  That is changing the face of the health care service environment and creating opportunities for real estate investors.

As bricks and mortar retail decline in importance, other types of companies are stepping in to replace those closed facilities.  Restaurants are filling the empty spaces in malls, while outpatient facilities are popping up in parking lots.  Where fast food restaurants were being courted for empty lots, urgent care facilities are the buildings of choice. 

Going forward, there is little doubt the need for lower cost health care facilities will continue to expand.  Baby-boomers are reaching an age where they have high health care needs, while Millennials are in their family-formation years.  The implication is that for many years to come, the commercial real estate sector will benefit from the added demand and the need for health care cost containment.    

This article was written by Joel L. Naroff exclusively for Investors Bank. Mr. Naroff serves as an Economic Advisor for the bank.

Investors Bank created a Healthcare Lending Services division to help busy physicians and healthcare professionals get solutions to fit the needs of their practice. We have a team of dedicated specialists with extensive healthcare lending experience. Given the ever-changing healthcare environment with JVs, ACOs, RVUs, MSOs and ASCs, the way you practice medicine needs to stay ahead of the curve.

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Comments
George P.
Interesting
9/26/2017 2:21:29 PM

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