The future of healthcare real estate is being driven by two main factors: accessibility and affordability. The change has been meteoric. Large, hospital-anchored medical campuses are being replaced by retail-like ambulatory surgical centers (ASCs), and the expectation is the product will see tremendous growth in the seven-year period through 2024. “It’s a huge number, and really telling of the future of healthcare, of what the patient wants, and of what’s going to make life easier for the provider groups,” said Alexandra Henderson, SVP of Kidder Mathews and based in the Portland office. “It will take pressure off the hospital groups.”
“Rather than massive hospital campuses with a large range of services, the trend is to serve populations closer to where they live,” said Michael Dupuy, Kidder Mathews SVP and Managing Director in Phoenix. “The accessibility and convenience are amazing,” added Erica Paige, First VP at Kidder Mathews in Sacramento, CA. “Why drive 20-plus minutes for an MRI when you can go just down the road for a scan?”
No longer tied to a hospital campus, healthcare providers have ventured farther into residential areas. Yet, how do they determine optimal site selection?
“Off campus healthcare real estate has continued to grow as medical groups are prioritizing patient convenience. We have seen medical groups plant a flag in a few submarkets opposed to one larger regional presence. In the Northwest we have seen population growth on an annual basis with a continued push for new housing in the suburbs which allows the medical groups to follow,” said Will Frame, Kidder Mathews EVP in Tacoma, WA.
Demographic expansion is important, of course, but physicians should also know the patient composition of the market, including the percentage of elderly and other Medicare users. Paige cites the large population of seniors in the California’s Central Valley, where medical office accessibility is essential as those types of patients faced significant challenges in the old setup at hospitals with big parking fields.
On the operational side, off-site ASCs allow physician groups better visibility and more control, including over their hours.
“For physicians, there’s an equity piece that they can unlock easier,” Frame said. “Private practices have recently gravitated towards off-campus ASC’s as an alternative to an off-campus clinic with nearby hospital privileges, partly due to the private equity market investing heavily in healthcare. Private equity investment allows for physician ownership, necessary infrastructure, and a platform to grow the practice across the region.”
In a bullish sign of the times, we have seen groups target three to five major markets in the Pacific Northwest for simultaneous expansion. The uber-detailed, consultant-directed approach, which even employed a per-week and -patient revenue estimator, has yielded lease commitments within twelve months of each other. Surgeon precision has come to real estate operations.
Not surprisingly, Kidder Mathews’ projections in the high-growth healthcare real estate sector have to do with expansion. Look for the continued rise of “med-tail,” the highly visible, stand-alone or retail strip-based medical clinics serving ever-increasing demand for outpatient services. “COVID accelerated the ‘med-tail’ trend and we expect to see increased development of medical facilities near retail-centric areas,” said Sean Brennecke, VP in the Portland office. Also, private equity’s fresh backing of behavioral health groups is something to keep an eye on. Finally, more institutional capital will likely pursue healthcare real estate.
“The asset class has proven to be resilient through the pandemic,” said Dupuy, who reported larger average investment deal size each year over a five-year period. “Other product types can’t match that. Traditionally in the broker space, we viewed medical office as a subset of office, but in the future it will stand alone.”