The U.S. and the world are facing a tremendous challenge; the scale of which is unprecedented in recent history. The spread of the novel coronavirus (COVID-19) is significantly changing all aspects of day-to-day life and impacting society, the economy and, by extension, commercial real estate.

The extent, length and severity of the COVID-19 pandemic is unknown and continues to evolve at a rapid pace, sometimes changing by the hour. We are already seeing entire states and countries on lockdown, rising mortality rates, widespread layoffs and a stock market collapse into recessionary territory.

Some economists are anticipating a sharp bounce back for the economy that could occur as soon as Q4 2020; others feel that it could take 12 to 18 months for the impact of the COVID-19 pandemic to fully play out.

What are the implications for healthcare real estate? Potential impacts include the following:

• Real estate decision making may largely be put on hold, impacting leasing and acquisition/disposition activity.
• Fewer medical office buildings (MOB) and hospital developments are expected to break ground in the near term. Expect a focus on increasing the availability of options to treat COVID-19 patients through re-designating and converting existing spaces, reopening closed hospitals and the construction of temporary facilities.
• Corporate merger and acquisition activity involving healthcare firms is expected to slow. The current turmoil in the capital markets and unfolding impacts on the economy may change the competitive positions and strategies of individual healthcare firms, but the structural changes that have been taking place in the industry should resume in due course.
• Even after the economy and markets stabilize, a period of dislocation and a need for price discovery can be expected.
• Healthcare should be one of the few economic sectors that will gain jobs as a result of the pandemic, with accelerated hiring of medical professionals, administrators and support staff already underway. Where these positions are located, how long they will exist, and how they will be housed while they are needed is being decided on a “real time” basis.
• The healthcare industry’s demand curve may be shifted upward as a result of post-crisis policy changes. There is debate over whether the U.S. was sufficiently prepared for a pandemic. Individual states are proving to have different levels of healthcare capacity relative to the size and potential needs of their populations. These factors have been thrown into sharp relief by the coronavirus’s rapid spread.
• One result may be an increase in funding and staffing for healthcare research, facilities and equipment, and preparedness planning. In such a scenario, the impacts for the healthcare and life science industries could be positive.
• The trend toward telehealth should also accelerate, as non-critical visits to hospitals, clinics and physicians’ offices move online to minimize exposure of medical staff and limit in-person visits.
• Differences in economic composition could translate into performance variations for individual metro markets. Cities that have major medical centers and/or host biotech, medical device, and pharmaceutical research clusters may well perform the strongest in this environment.
• Initiatives involving medical data storage, analysis and diagnostics could continue to emerge. One example is Google’s “Nightingale” venture with Ascension Health Systems, which has given Google access to patient data from the 21 Midwestern states in which Ascension operates. Amazon and Apple are also understood to be expanding their businesses to include electronic health records.

Colliers will continue to track the impact of COVID-19 across economies, markets, and real estate sectors. We are providing insights to help you understand the potential impact on your business and community and recommendations on ways to minimize the impacts, where possible. Please visit our COVID-19 Knowledge Leader page for resources and the latest updates.

In addition, we will shortly be publishing our 2020 Healthcare Marketplace Report which will address performance and trends in the healthcare real estate sector and the issues and opportunities that they present.

About the Authors:

Stephen is the National Director of Office Research for Colliers International, where he focuses on analyzing office property trends, compiling Colliers’ thought leadership and delivering timely market projections to provide clients with a leading edge in our industry.

Shawn Janus is National Director | Healthcare for the USA. Shawn’s focus is to cultivate a strong, value-driven platform in the healthcare space, allowing Colliers to raise the bar in delivering innovative and successful solutions to our healthcare clients.