While the worst of the pandemic seems to be fading into the review mirror, ongoing economic and talent challenges continue to roil the U.S., especially in the healthcare sector.
The last three years make it nearly impossible to know what may lie around the corner, but the challenges within the industry lend a bit clarity to what may unfold in the year ahead as investors and health systems reprioritize to address hurdles.
Trends that will likely take place in 2023 include the flow of capital toward new funding opportunities, investors flocking to recession-resistant healthcare assets and retailers continuing “medtail” spinoffs.
CVS vs. Walgreens: The Battle Rages On
The two leading pharmacy retailers continue to ping-pong their healthcare strategies, raising the stakes of primary care, shifting portfolios and delivering new health offerings.
Earlier this month, Walgreens raised the long-term outlook for its U.S. healthcare segment to reflect its recent acquisition of medical group Summit Health. “Walgreens expects the segment to bring in between $14.5 billion and $16 billion in sales in 2025, up from the previous guidance of between $11 billion and $12 billion for that year,” reported Healthcare Dive.
Meanwhile, CVS has been on its own march toward primary care market domination with the $100 million investment into Carbon Health. There are reports the retailer is also in talks to acquire Oak Street Health, a chain of primary care centers, for $10 billion.
The duo are also re-evaluating their store strategy. Last year, CVS announced that it would close 900 stores over the next three years, reducing “store density in certain locations,” and Walgreens announced it would be reducing its roster by 200 stores.
In 2023, these two will likely continue to go toe-to-toe in the headlines. Others will also consider forays into the ripe primary care space, so keep a close eye on GE Healthcare and Optum as well.
Shawn Janus
“Historically, both female reproductive health and overall funding have trailed other groups. In the U.S., women’s health start-ups attracted more than $916 million in 2022, up from $501 million in 2021. Looking ahead, this funding may continue its upward trend as investors recognize the opportunity.”
Women’s Health Will Receive Overdue Resources
Women’s health rights were at the forefront of political discourse in 2022, and this conversation is expected to continue and amplify this year, amid ongoing social and economic unrest.
Historically, both female reproductive health and overall funding have trailed other groups. In the U.S., women’s health start-ups attracted more than $916 million in 2022, up from $501 million in 2021. Looking ahead, this funding may continue its upward trend as investors recognize the opportunity.
Healthcare Real Estate Sub-Sectors Attracting Capital
With ongoing historic inflation, many expect venture capital investment in healthcare to slow, ending the upward trajectory of 2021 and 2022.
However, at Bisnow’s Healthcare Summit, experts shared their belief that the looming recession could provide an opportunity for healthcare real estate to “really shine,” especially within specialty sub-sectors, such as seniors housing and medical office buildings. GlobetSt.com reports that seniors housing occupancy hit 81.4% in Q2 2022, up 3.4% from the pandemic low of 78% in Q2 2021.
Meanwhile, medical office fundamentals are solid — especially when compared to the office sector. Colliers’ research shows that average rents ticked up to $22.61 per square foot in 2021, a year-over-year increase of 1.7% and a new high for the sector. The national vacancy rate fell by 10 basis points to 8.3%, and net absorption across the top 100 markets totaled 19.1 million square feet.
Because healthcare properties have historically outperformed during tough economic cycles, 2023 will likely have an influx of dollars for these “recession resistant” assets.
Michael Cummings
Maureen Goetz