Real estate investment trusts (REITs) invest in various types of properties including residential and commercial. Among the commercial real estate, one often overlooked sector is the healthcare real estate. Hospitals, medical office buildings, outpatient facilities, senior living facilities, and skilled nursing facilities are part of healthcare real estate. Healthcare REITs are regarded as more defensive compared to other REITs. There are several reasons why healthcare real estate can be a good long-term investment.
Growing demand for healthcare
Accelerating demographic changes are driving healthcare demand. According to John Chang, SVP of Marcus & Millichap at the GlobeSt. Healthcare Real Estate Conference, there will be 11 million more people over age 65 and another 6.5 million over 75 in the next five years. Between age 60s to 70s, there is a 35% rise in the need for healthcare services. Also, total annual healthcare visits (currently at one billion) will likely increase by 10% in the next five years. Healthcare facilities will be in use for a longer period of time, making healthcare real estate a steady and long-term investment.
More defensive in the case of an economic downturn
Healthcare real estate is viewed as more defensive than other property types such as offices or hotels because people need healthcare when they are sick whether the economy is strong or not. Tenants also sign longer leases, and turnover is minimal, leading to longer and more stable rental cash flow. A medical office is attractive as it is half as volatile as the other real estate investments, and investors are looking for medical tenants who are viewed as e-commerce-resistant.
Initial investments and rising value in healthcare property over the long-run
Healthcare property value tends to increase gradually over the long-run compared to the more volatile nature of the other types of real estate. Buying a healthcare property does not require a huge amount of initial investments. This is because the owner of the healthcare property usually has to buy a minimal amount of furniture and then rent it to the practitioners or professional teams, who will populate the facility with their own tools.
Attractive types of healthcare properties
Recently, thanks to the aging baby boomers, senior care facilities including high-quality assisted living and memory care service assets have become more popular investments. Medical offices have also been viewed as recession-resistant, with more investors focusing on outpatient facilities such as emergency rooms and specialty services rather than large medical buildings