The passage of the 2010 Patient Protection and Affordable Care Act (ACA) may result in some unique and interesting opportunities for the alert investor.
While the recession has been brutal to the commercial real estate industry forcing occupancy levels across most asset categories to painfully contract, the implementation of the ACA may afford savvy investors new opportunities to meet the needs of accelerated, “good old-fashioned” demand in health care sectors.
Expanded health insurance coverage will surely expand the need for medical office space, as well as the retail, manufacturing and industrial space for health-related businesses.
Remember that approximately 32 million of the 46 million uninsured Americans will receive insurance coverage under the new legislation in 2013. Approximately 260 million people in the U.S. enjoy some kind of medical insurance coverage.
MEDICAL OFFICE BUILDING (MOB)
The need for new medical space for patient care appears not to be tied to any one asset type.
For instance, observe retail space morphing into medical use becoming a new part of the retail sector’s economic recovery. The marriage of medical use and retail space is becoming an important and growing part of the U.S. primary care delivery system. This new strategy is providing increased visibility and easy accessibility to a potential patient.
“Owners of better-quality, performing medical office properties should enjoy stable returns over an extended period, as tenants tend to make significant investments in improvements and on-site equipment, discouraging relocations.”( Marcus and Millichap report)
Medical office building (MOB) investment opportunities should begin to outperform other real estate sectors as hospital and medical group executives move ahead with plans that have been on hold. Long-term stable leases, diversity of income sources (i.e. insurance companies, government reimbursements, and private sources) coupled with the matrix of expanding tenants (Assisted Living facilities, Pharmaceutical companies, Biotechnology companies, etc.) all contribute to these contemporary investment strategies evolving within the healthcare industry.
Consider the industry multiplier of 1.9 sq ft required per patient. This estimate should eventually increase the amount of requisite “patient space.” It can be estimated that 64 million additional square feet may be required to meet the increased demand. The surge in demand for space is estimated to happen almost immediately. Vacancy rates in retail and office make both sectors ideal candidates to absorb the increased medical demand.
TRENDS TO KNOW
16% of hospital executives indicate future projects for them are outpatient facilities in neighborhood settings. (ASHE2011 Construction Survey)
We will be watching this trend through in the upcoming year 2013.