Commercial real estate investing is preparing a shot in the arm as a result of the shift in delivery of health-care services from the Affordable Care Act.
The new law is turning health care into a growth sector that real estate investors cannot ignore, managers say. Starting next year, the law is expected to extend health-care services to 30 million to 50 million more people, greatly increasing demand for medical office space and medical facilities, as well as certain types of senior housing and care facilities.
Health care's percentage of gross domestic product in the U.S. is expected to grow to 19.6% in 2021 from 17.8% now, according to a LaSalle Investment Management Inc. study quoting data from the Centers for Medicare and Medicaid Studies, part of the U.S. Department of Health & Human Services. The medical office sector continues to improve, with demand for buildings expected to exceed supply through 2014, LaSalle's study noted. What's more, medical office vacancy rates have been lower and more stable than the total office sector, averaging 10.3% between 2001 and 2012 compared with 14.4% for all offices over the same period, according to the study.
Equity real estate investment managers increasingly are moving into the sector, threatening to replace the health-care real estate investment trusts that have been dominant in winning properties. REITs accounted for $2 billion of the medical office market in 2012 compared with $572.4 million for equity real estate money managers, according to the LaSalle study, citing Real Capital Analytics data. In 2009, the year before the act was passed, equity real estate managers invested $38.2 million in the health-care sector.
The Affordable Care Act also is affecting the type and location of properties that will be required. In the past, the most highly prized properties in the sector were either on hospital campuses or nearby. Now, pushed by the law to cut costs, health-care systems are developing satellite offices, boosting the potential value of medical office buildings located in population growth centers retrofitted for medical groups to do provide everything from medical exams to lab work, imaging and out-patient surgery.
“It is the biggest medical reform since Medicare and it has huge ramifications on the (health-care real estate) sector,” said Tim Wang, director and head of investment research in the New York office of real estate money manager Clarion Partners LLC.
In addition, doctors are giving up their practices to join larger health-care organizations because of the increased pressure on costs. This trend makes offices set up for multiple individual practices less valuable, Mr. Wang said.
“We believe that the new ... act will likely accelerate the trend (of doctors selling their practices), which will in turn impact our investment strategies for medical offices,” Mr. Wang said.