Most Healthcare Companies Say They’d Rather Lease

Nearly three-quarters of healthcare companies recently surveyed say they’re considering leasing instead of owning commercial real estate, lured by the promise of more flexibility as COVID-19 continues to wreak havoc on decision making.

Nearly one in five respondents surveyed by Ryan Companies also said they are putting COVID-19 relief funds toward remodeling or renovating amid historic staffing shortages. Only 5% said they could consider building new inpatient facilities. And of the 70% that would consider leasing over owning, 40% said that decision was “somewhat likely,” 17% said it was “likely” and 13% said it was “very likely.”

“Healthcare organizations must make sound investments that maximize limited resources and anticipate future service needs, like the continuing shift to outpatient environments and how the needs of their communities are changing,” said Mike McMahan, executive vice president of healthcare, Ryan Companies. 

Hospital, health systems and medical clinic respondents were more neutral when it came to leasing versus owning, while senior living, insurance company and other respondents skewed more heavily toward “likely” and “very likely” to lease. 

“Despite the volatility in the market, it is still a great time for providers to access third party capital to fund development projects,” said Andrew Twito, vice president of capital markets, Ryan Companies. “Healthcare real estate investors continue to provide competitive debt and equity for leased projects allowing providers to reinvest capital in healthcare delivery instead of trapping equity in real estate ownership.” 

In addition, 28% of respondents are considering increasing storage space off campus due to supply chain disruptions, while 35% of respondents said they are consolidating their real estate footprint to better control operational costs.

Another interesting finding: 23% of respondents cited unclear future service needs as a top barrier to creating and implementing real estate strategy. Another 18% pointed to conflicting capital priorities as the top barrier, and lack of available capital was the top barrier for 14%.

“With the trajectory of COVID-19 surges difficult to predict, and at the same time catering to an aging U.S. population with unique needs and expectations, it’s understandable that some organizations don’t have a clear path forward,” Ryan Companies researchers note in a report in Modern Healthcare breaking down the survey’s findings. “This is where partnering with a company that has deep experience in all aspects of healthcare real estate can help shed light on the strategies and innovative thinking that other organizations have employed and found success deploying.”