Research - SEPTEMBER 3, 2019

Healthcare real estate investment surges

by Andrea Zander

Investment in healthcare real estate has risen dramatically in the last five years, with investors betting that medical facilities will be increasingly important to an aging population, according to JLL.

Medical building sales in the United States hit nearly $10 billion in 2019, a figure that has doubled from 2014.

“Many institutional investors are realizing that healthcare property returns have been pretty solid and steady over time,” says Jay Johnson, a JLL managing director and National Practice Lead for Healthcare. “We expect that trend to continue for the foreseeable future, which explains growing interest from institutional capital.”

The investment volumes are emblematic of the broader shift in allocation to commercial real estate in the last decade, as investors hunted for returns in an environment with persistently-low interest rates.

The sustained demand overall has encouraged investors to look into alternative real estate sectors such as healthcare and student housing.

Aging baby boomers have altered that point of view and propelled medical properties into the mainstream. By 2030, all baby boomers in the U.S. will be older than age 65, according to the U.S. Census Bureau. Five years later, the number of people 65-years-old and up will outnumber those under 18 years old. By 2060, one in four people — or 95 million — will be 65 or older, and 20 percent of those will be over 85.

In addition to aging baby boomers, growing consumer expectations for convenient healthcare experiences have helped fuel the development of these outpatient facilities, from doctor offices in conventional medical buildings to same-day surgery centers in retail settings.

The increasing private equity interest in healthcare operators should fuel an expansion of the facilities, giving a broader pool of net-lease investors more opportunities to own the buildings. Single-tenant medical office transactions
have totaled around $2.5 billion for four straight years through 2018, which is about $1 billion more annually than the three years prior to that period, according to JLL research. What’s more, single-tenant medical buildings are fetching higher per-square-foot prices than the net-lease sector as a whole, said Peter Bauman, senior vice president with JLL Capital Markets.

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