The healthcare sector is an economic force in the United States surpassing manufacturing and retail to become the largest employer of the nation’s workforce. The healthcare sector has over 13% of the total workforce in the country and it is expected to continue growing. Here we discuss about Healthcare Real Estate Investment in Dallas.
The aging population, prevalence of different health conditions and chronic diseases have made expansions of the healthcare sector a necessity.
Investment in healthcare real estate has risen significantly in the last couple of years. It is expected that the need for medical facilities and health-care related buildings will continue to grow in the coming years due to rising patient numbers.
Healthcare real estate investors are realizing good profits and returns from their investments with brighter future predicted.
Healthcare Real Estate Investment Trends
According to JLL research, the sales of medical buildings in the United States reached almost $10 billion in 2018.
According to the U.S. Census Bureau, by 2030, all baby boomers in the U.S. will be more than age 65. In another five years’ time, the number of people who are 65 years old and more will be more than the number of people who are under 18 years old.
By the year 2060, one in four people will be 65 years old or older and 20 percent of the total aged people will be over 85 years old.
This means there will be more needs for healthcare facilities such as doctor offices, outpatient facilities, surgery centers, medical homes, clinics, and so on.
New improvement doesn’t have all the earmarks of being surpassing interest, so overbuilding is most likely a lesser worry for real estate investors.
In addition, an extreme re-building of the system, for example, “welfare for all” with a transition to a single-payer system, would almost certainly expand access to medical care and thusly increase the demand on medical real estate needed.
Administrative issues bring a specific measure of hazard and questions. However, regardless of how you feel about potential changes, whether gradual or radical, it’s probably going to carry more human services to more individuals, requiring more space to house healthcare providers and consumers.
The growth of the healthcare sector has caught the attention of retail property investors who were looking to move away from the sector. Investors who want to acquire more medical properties to their investment portfolios are diving into healthcare real estate.
Before now, healthcare real estate investors have always avoided investing in medical office buildings and healthcare facilities largely because they are used for a specific and specialized function. This has drastically changed in recent times as needs for more healthcare facilities are required.
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.
According to JLL research, single-tenant medical office transactions have totaled around US$2.5 billion for four straight years through 2018, which is about US$1 billion more annually than the three years before that period.
Medical real estate offers a better alternative to retails, with strong, dependable returns that are less susceptible to disruption from e-commerce. As long as trends in healthcare continue to point toward longer lifespans and increased care, medical facilities will remain critical and demand will continue to increase.
Healthcare Real Estate Investment Insights
Investing in healthcare real estate is a profitable investment plan. Below are some insights about healthcare real estate investment:
Real estate is the key to capture demand for the increasing number of patients
Looking at patient-care facilities across the U.S, it is clear that the hospital-centric image of traditional healthcare is dwindling.
The growing and aging population is placing new demands on the nation’s healthcare system, while technology advances are shifting consumer preferences and increasing demand for easier access to care in lower-cost settings in communities.
Meanwhile, healthcare providers face ever-mounting pressure to expand care and quality of service while containing costs.
Hospitals are not the only healthcare providers in town. While total patient numbers are rising, many hospitals face mounting risks of volume decline and margin erosion in their specific geographies.
Now more than ever, healthcare providers of all sizes are responding to the challenge and using real estate to serve patients more efficiently and effectively.
Increasing baby boomers requires more care
In the U.S. economy, healthcare is the fastest-growing sector. Spending has jumped 33 percent since 2000 alone and today accounts for 17.9 percent of the gross domestic product (GDP).
More growth is on the horizon, from now through 2025, we expect spending to continue to grow by another 5 percent or more annually.
The job force is also surging, with healthcare employment enjoying faster growth than any other sector in the U.S. workforce. Today, it comprises 12.2 percent of the nation’s workforce with another 18 percent increase over the next decade.
This momentum points to an overwhelming hunger for more modern, intelligent locations, as rapidly as possible. Add in our aging population, and long-term stability of this demand is all but ensured.
Roughly three-quarters (73 percent) of the nation’s healthcare spending now comes from the 50-plus population. More than 10,000 baby boomers are turning 65 this year, which makes them Medicare-ready.
And many more are on the way, considering estimates that the number of people 65 years old and up will nearly double by 2050, 80-and-up will triple, and 90s and 100s will quadruple between 2010 and 2050 alone.
By 2050, the U.S. population over 65 years is projected to nearly double from 48 million to almost 88 million. Doctor visits and medical expenses dramatically increase with age.
Millennials are redefining healthcare today
They don’t want a one-size-fits-all hospital campus. They want more convenient locations, with smaller, more concentrated offerings, at convenient times and self-directed and when they find the right fit, this brand-loyal generation is likely to keep the faith.
These preferences hold significant weight in an industry where young people are quickly becoming the dominant healthcare consumers, both for themselves and for their families as caregivers.
The majority of babies born in the United States this year (82 percent) were born to millennial parents, and many are looking to establish a relationship with a healthcare system for the first time.
Intergenerational dynamics, rising patient numbers in general and intense cost pressure all point to the need for new types of real estate, in new and more locations.
The setting of healthcare is changing
Healthcare leaders are making major strides in meeting patients where they are while supporting financial health.
Value-based care with a focus on population health and the rise of consumerism has altered healthcare delivery, leading to new real estate strategies that include urgent care and building outpatient centers or smaller-scale micro-hospitals and health-system sponsored wellness centers.
The migration from inpatient to outpatient care, which has been taking place over the past 20 years, has contributed to a decrease in the national occupancy rate for hospitals from 77 percent to 61 percent since 1980, according to data from the Medicare Payment Advisory Commission.
Why Dallas healthcare real estate investment is the best choice for everyone
Dallas, situated in North Texas, is the ninth-largest city in the United States and the third-largest city in Texas. The population of Dallas in 2014 was estimated at 1.28 million and grew to 1.3 million in 2016.
In 2010, Dallas had an official population of 1.197 million people which grew to an estimated population of 1.24 million in 2012 and 1.28 million in 2014.
The Dallas metropolitan territory is a lot bigger and is one of the fastest developing city in the U.S. The 13-district Dallas-Fort Worth-Arlington metro territory has a populace of 6.8 million, which is the seventh biggest metro region in the United States.
A high percentage of the population in Dallas are baby boomers and they need healthcare services. Dallas is a city filled with foreigners and immigrants who need healthcare services.
Texas baby boomers are projected to yield a population of 5.9 million or 19.4 percent of the state’s total population in 2030 and Dallas is one of the cities with the highest number of baby boomers in Texas.
Dallas has a very good economy. It has GDP estimated at $450 billion, ranking Dallas 6th in the best GDP in the United States.
Dallas ever-increasing population, increase in baby boomers and with its good economy, makes the city a good choice for Healthcare Real Estate Investment in Dallas.
How healthcare commercial real estate is different
Below are some vital things investors should know about healthcare real estate and why it is different from other forms of investments.
Medical office buildings (MOBs) boast uniquely stable long-term occupancy rates.
Indeed, from 2009 on, this sector has been the picture of stability. The quarterly weighted average occupancy ranged between a low of 90.4 percent in 2009 and a peak of 92.6 percent in 2016 a mere 200-basis-point spread from recent peak to trough.
Occupancy rates are expected to remain stable for the near future, with limited room for growth given the presently high rates.
Pricing has been steadily trending up, by an average of 49.8 percent over the last five years, with overall steady growth over the last decade despite the Great Recession. All told, MOB average sales price numbers bear out this sector’s appeal and relative resistance to downturns in the real estate market.
As other property sectors have tightened, MOBs offer high returns
As competition for Core product in gateway markets has resulted in several years of cap rate compression, investors are moving into new sectors, with a greater focus on alternative property sectors.
The low yields for commercial office and other traditional real estate persist, institutional and foreign investors are increasingly turning to alternatives offering attractive returns.
Medical offices have consistently offered a 2 percent spread in cap rate or greater over similar benchmarks for the last five years, making it a desirable prospect given its consistent performance over a long time.
MOBs attract a high-quality tenant base
As more physician practices move to hospital ownership, MOB’s hospital affiliation is increasingly important. As of mid-2015, one in four medical practices was hospital-owned, according to a study by Avalere Health. Further, hospitals acquired 31,000 physician practices, a 50 percent increase, from 2012 to 2015, according to the report.
According to an American Medical Association (AMA) study, the newest generation of doctors is shifting from owning their medical practice to joining larger multispecialty practices to leverage administrative and payer partnerships as well as lifestyle choices.
Construction of new medical facilities is keeping pace with demand
Despite strong demand, MOB inventory crept up only slightly in 2017. 2018 expects to see higher completions and starts with virtually no speculative development, unlike other property types. These deliveries are in step with absorption, and overall, steady occupancies and increasing rental rates.
Healthcare real estate will continue to grow and evolve
Despite the momentum around MOBs, the need for acute care real estate hospitals and hospital campus properties is also growing, and for good reason.
While healthcare services are trending from inpatient to outpatient facilities, hospitals will also see growth in total patient-day numbers.
The volume of inpatient services will continue to grow regardless of declining inpatient utilization rates. Inpatient facilities will increasingly be focused on the sickest and most acute care needs, often requiring longer stays. With more hospital starts as health systems race to expand and replace obsolete facilities.
Roughly 75 percent of these hospital project starts are expansions or replacements, although entirely new hospitals are also being built, too, with 92 underway at the end of 2017.
There are a handful of related drivers fuelling this demand for new hospital facilities, as well as the push for more micro-hospitals and licensed post-acute and sub-acute facilities.
Ultimately, however, the $21.4 billion of new hospital construction underway now is helping meet patient demand.