The convergence of demographic and technology is changing our day to day lives and having a material impact on residential and commercial real estate markets - especially in healthcare. Our country is aging and 'on the move', while technology is simultaneously revolutionizing the health and wellness industry.
The best way to see this convergence is to first examine how demographic trends and technological trends, such as telehealth and the migration to outpatient care, impact healthcare real estate. Then, we can see how both factors are interconnected and a source of future growth for the sector.
Demographic Changes
America is getting grayer, plain and simple. Look at the following charts from the Urban Institute. Projections show that the number of Americans aged 65 and older could more than double over the next 40 years and reach 80 million in 2040. However, adults aged 85 and older may quadruple by 2040.
(Source: Urban Institute)
By 2040, about one in five Americans could be age 65 or older compared to approximately one in eight in 2000.
(Source: Urban Institute)
Why is this such a big deal? The greater the number of older people, the more demand there will be for healthcare services. The 80 and above crowd demands more healthcare services, and as that segment grows, so will the demand for those services.
"The US is also experiencing significant change within its older age groups, as the 'baby boomers' and technological enhancements are extending lifespans," says Martin Freeman, CEO of OrbVest, a global real estate company that invests in US income producing medical commercial real estate. "The age group of 65 years and older continues to grow and older populations visit medical practitioners 5 to 6 times more often than younger age groups. The above factors are driving demand for healthcare and medical facilities, which creates stability and resilience within our niche."
"The current challenges faced by the global economy, and the potentially aggressive rebound in business sentiment in the United States, creates an ideal opportunity for OrbVest to assist investors from around the world to invest directly into medical real estate and grow their wealth consistently and sustainably."
The median age in specific regions in the country is directly correlated to investments in healthcare too. Look at this map of the U.S.'s median age by county as of 2016. The darker the green, the older the median age. Remember, this map is from 4 years ago, as well. You can imagine that it's darkened even more since then.
Source: Census.gov
Notice the massive segments of dark green in the Southwest, South, West Coast, and Midwest.
Now, look at the regions of the U.S. which experienced the most significant volume of medical office building sales in Q4 2020. It appears to directly correlate to the median age of the region.
Source: CBRE
Notice which regions also experienced the most amount of medical office building construction as well in Q4 2020.
Source: CBRE
So this is a bird's eye view of how our aging demographics are causing increased demand for healthcare real estate as a whole -- both in the short-term and long-term. However, let's look at how an aging population is causing seismic shifts in healthcare real estate trends.
Healthcare is Segmenting and Specializing
"The shift away from the hospital as the epicenter of American healthcare is likely to continue and may accelerate," according to Ankura. The pandemic greatly exposed this shift. Hospitals and the overall healthcare system actually works better if it's further segmented. You have to consider two major segmentation trends -- the separation of outpatient care from hospital facilities and the segmentation of wellness and acute care locations.
Why?
First and foremost, seniors value preventive and personalized care. In other words? Specific facilities dedicated to specific needs.
Even before the pandemic, the segmentation of outpatient care from hospitals was a growing trend. For years, health systems have been either acquiring or partnering with physicians and physician practices and ramping up the volume of services provided in outpatient settings. Not to mention, insurance plans and government payment policies are servicing in lower-cost care settings, like outpatient facilities. Simultaneously, hospitals have seen revenue surge from 30% in 1995 to 47% in 2016 from these facilities.
There is also a rapid acceleration away from primary care and toward specialization among physicians. Integrative medicine seeks to harness this trend, often organizing medical practices into physician groups in order to treat patients holistically rather than compartmentally.
While many aspects of segmentation, such as moving ambulatory care and non-medical needs outside of in-patient facilities, looked like a temporary COVID trend, something happened. It actually worked better and significantly increased outpatient efficiency. This could very well be a demographic-driven, revenue-driven, and efficiency-driven long-term trend, creating a surge in demand for medical office space.
Consider how successful the "medical home" model has been for segmentation too. This model essentially groups primary care and specialty care into consolidated locations with imaging, pharmacy, laboratories, and more. Many of the largest health systems have already started adopting this model. According to Ankura, companies like Contessa and Medically Home, who have been early adopters of this model, flourished in 2020, despite the pandemic. This shift may also potentially require larger buildings with more extensive footprints.
Cost-Effective
According to a study done by West Health and Gallup, in the past 12 months, seniors have withdrawn an estimated $22 billion from their long-term savings for health-care-related expenses.
Consider some of these other statistics as reported by the Washington Post:
10 percent of Americans 65 and older did not seek needed treatment in the past 12 months because of care costs.
About 7 million seniors couldn't afford to pay for their prescribed medication in the past 12 months.
Eighty percent of the prescriptions seniors can't afford are used to treat somewhat serious or severe health conditions.
Ninety-two percent of seniors believe the cost of health care will not improve or will get worse.
It's simple. Seniors value affordable access to specialized healthcare and the segmentation of healthcare facilities is showing to help in this regard.
Take walk-in health clinics, for example. This is a growing healthcare trend and a low-cost alternative to hospitals. According to research from Timothy Hoff, professor of management, healthcare systems, and health policy at Northeastern University, walk-in clinics nearly doubled between 2010 and 2018 and will continue to grow exponentially. Last June, CVS announced a plan to open 1,500 additional walk-in clinics by the end of 2021.
Consider this too. A study from 2015 claimed that 27% of all emergency room visits could have been dealt with sufficiently in a walk-in clinic.
Convenience and Lifestyle Integration
Another significant demographic-led change to healthcare real estate? The fact that seniors greatly value convenience and lifestyle integration. As healthcare segments its properties, where do you think they are locating their lower-acuity, lower-cost facilities? They're locating them in more convenient and easily accessible locations in population centers.
The rise of "MedTail"
Retail and healthcare real estate share many common traits, such as the need for high traffic, visibility, neighborhood proximity, and parking access. With the future of brick and mortar real estate in question, and shopping center availability and affordability sprouting up, healthcare tenants are gobbling up space in retail centers.
This has caused the rise of "MedTail" real estate- or healthcare facilities integrated with retail locations. We're talking about the increased prevalence of drugstores and supermarkets containing health facilities, such as the CVS minute clinic or Kroger's Little Clinic. We're talking about urgent care centers popping up in strip malls. We're talking about other specialized health facilities sprouting up in highly concentrated population centers.
But not only that. According to healthcare real estate firm HBRE, small towns and suburban areas that once had little access to local medical facilities are seeing more options now due to this growing trend.
Consider some of these statistics also.
A Grandview Research report showed that the U.S. retail clinics market size was valued at about $1.4 billion in 2016. Through 2025, it's projected to grow exponentially at a CAGR of 20%.
Source: Grandview Research
Tether Advisors also performed a study and found that "nearly 80 percent of private equity, commercial real estate and retail healthcare respondents believe medtail investment will increase in the coming year and that COVID-19 bolstered the sector's outlook."
Remember how we also discussed how the country's oldest aged regions correlate with the most significant healthcare real estate sales volume and new construction? The trend is especially pronounced with MedTail real estate. According to a RAND Corporation Research Brief, ¾ of retail clinics are located in the South and Midwest.
Source: Rand Corporation
The Impact of Technology/Telehealth
Telehealth was already growing long before the pandemic. Although it was a slower-paced growth and more of a slog than a surge primarily due to "obstacles including the lack of a consistent payment strategy, unclear relative advantage and implementation scope, education and infrastructure investment requirements, lack of experiential foundation, and concerns surrounding fraud and abuse," according to HealthAffairs, look at telehealth now.
It has completely revolutionized healthcare. For the first time in human history, health-related services and information can be available to patients from the comfort of their own homes. Patients in remote locations now have access to quality healthcare. Do you know who else does? The perceived, technologically lagging, aging demographics.
A recent Forbes article claimed that hospitals in the U.S. are "scrambling" to offer telehealth and home services to add additional revenue streams. Simultaneously, a Fortune Business Insights report proclaimed that the telehealth market could be worth $559.52 billion and see a 25.2% CAGR by 2027.
Predictably, this has created an urgent need for healthcare providers to adjust and pivot and make telehealth a complimentary service rather than a replacement for in-person assistance.
How could this happen?
According to JLL's new Healthcare Real Estate Outlook: Adapting to a New Reality, telehealth integration will inspire a drastic change in how healthcare facilities are redesigned.
If done right, telehealth can actually supplement productivity per square foot and reduce the need for large amounts of square footage. This trend ties into what we discussed earlier about segmentation as well. Providers will adjust to what procedures can be virtual and which can be in-person and will also adapt space to their clinical operations.
In keeping with the theme of increased convenience and access, telehealth can significantly aid in this. For vulnerable populations, such as seniors, telehealth provides easier access to healthcare and a more convenient point-of-entry.
(Source: JLL)
Plus, it's pretty evident that there will be a surge in demand for telehealth provider suites.
Key Takeaway - Convergence of Demographics and Technology Will Impact Healthcare Real Estate
The greying of our demographics and technology evolution can converge to impact demand for healthcare commercial real estate. Combining advances in technology and telehealth with the healthcare system and an improved/aligned payor system for reimbursement, more per capita space in healthcare real estate for both the in-patient and outpatient environment can potentially meet a growing need and capture and retain an increasing number of patients as the need for services increases -- particularly from seniors.
The key is to use these shifts in technology in healthcare to bridge "the digital divide" for senior patients. As we discussed in the intro, we're seeing this "digital divide" play out right in front of our faces with the vaccine rollout. However, if healthcare providers can recognize this and bridge this gap with shifts in real estate, we can break these barriers. Preliminary evidence indicates that telehealth may be leaving some populations behind. Yet, as healthcare systems adopt telehealth and integrate it with their real estate strategies, it can significantly improve access, cost-effectiveness, and convenience for those who need it the most, America's seniors.
If you're looking into investing in healthcare real estate, consider the convergence of an aging population and evolving technology. The two aspects are more interconnected than most realize and have helped to create a very attractive current environment for healthcare real estate investment.
"The capital markets are currently awash in cash and significant amounts of smart money are increasingly moving into healthcare," says Freeman, "While most people invest in equities and some in real estate, at OrbVest we continue to believe investors should seriously consider investing a small amount into healthcare, as it has proven its resilience before and during Covid, and should continue its growth trajectory as an aging population and technological progress continue along its inevitable path."
