Threats and Opportunities in the Healthcare Marketplace

by | 26 January 2016

Colliers’ 2016 Healthcare Marketplace Report thoroughly examines the current condition of healthcare real estate in the United States. By most indications, it is healthy. The report provides a detailed analysis of healthcare marketplace statistics from the recent past, which is edifying for owners, occupiers and observers of the healthcare marketplace alike, but what really excites me are the emerging trends explored coming in 2016.

Plus: How healthcare systems are thinking like retailers | Physician office leases and investment in healthcare

It’s often observed that every change brings opportunity, and the healthcare marketplace is undergoing tremendous change in the United States at the moment. Let’s look at some of the trends producing opportunities (or threats, depending upon your perspective) for this rapidly-evolving market.

Tech is Transforming Healthcare
The Information Age has ushered in “disruptive” technology which makes use of our newfound and historically unparalleled connectivity. In the healthcare marketplace, telehealth and telemedicine are making steady inroads into health training and patient care. Wearable devices from manufacturers like FitBit and Jawbone are allowing people to track and quantify their health or lack thereof, and remote monitoring devices are increasingly used to keep tabs on at-risk individuals with chronic illnesses.

These innovations demand healthcare facilities with the tech specs to accommodate them (an opportunity) but they also place a cloud on the horizon for healthcare real estate. As diagnostic machinery shrinks and remote monitoring/telehealth becomes more common, how will healthcare real estate be affected? Our future seems to promise more virtual doctor’s visits and fewer check-ins at an actual doctor’s office.

The Retailization of Healthcare
The Affordable Care Act has produced millions of newly-insured citizens in the United States, and those citizens are valuable consumers. To reach them, the healthcare industry is increasingly acting as retail brands act, setting up clinics in urban and suburban shopping areas. Healthcare providers often move into these spaces when more traditional retailers, impacted by e-commerce, leave them. In fact, e-commerce is shaking up the retail real estate sector so much that healthcare real estate is often seen as a shopping center’s chance at an anchor tenant these days.

This “retailization” of healthcare represents both an opportunity and threat to the healthcare marketplace: the former in that healthcare has a unique chance to fill voids being left by retailers, and the latter in that filling those voids within existing retail footprints (as we see being done at Walgreens, CVS, Target and the like) does little to spur demand for more healthcare real estate.

Merger and Acquisitions
2015 was a big year for M&A in the healthcare marketplace, spurred by the lure of “bigger is better,” especially when negotiating for pricing discounts from suppliers and insurers. Whether or not that trend will continue into 2016 is uncertain, but one thing is clear: the new and aggregated landscape for healthcare systems is leading investors to put money down on healthcare real estate, as available spaces usually go to long-term tenants backed by large and stable entities. Of course, mergers and acquisitions can also lead to consolidations and redundant facilities, meaning that some spaces formerly occupied by healthcare may soon be vacant.

Financial Uncertainty Looming
Although healthcare will always be driven by the needs of its patients (and the United States, with its aging populace, is providing plenty of job security for health providers), healthcare costs are on the rise. The U.S spent more than $3 trillion on healthcare in 2014, a figure that probably grew by about 5.3% in 2015 and that could accelerate to 6% growth year-over-year by 2019. Healthcare systems are beingdriven to decrease costs, and there is only so much they can cut back on staffing and supplies. Eventually, they will have to cut back on another core expense—property. Combined with the march of technology and healthcare’s growing presence as part of the consumer economy, investors will keep a wary eye on the stability of healthcare real estate as an asset class in the coming years.

But I don’t mean to put a negative spin on the findings of Colliers’ 2016 Healthcare Marketplace Report! All in all, the prognosis is good for both owners and occupiers in healthcare real estate. Download the whole report, which is rich with charts and statistics that paint the full picture, here.

A fellow in the American College of Healthcare Executives, Mary Beth is also active in healthcare real estate professional organizations, serving in leadership roles with BOMA (Building Owners and Managers Association) for the Medical Office Buildings and Facilities conference and with the Urban Land Institute Health and Life Sciences Council. She also volunteers her time, having served on the boards of the United Way, North Mecklenburg Child Development Association, Davidson Land Planning Commission, Davidson Planning Board, and the Lake Norman Chamber of Commerce.