Medical Real Estate Has Significant Untapped Development Potential

The U.S. healthcare industry is increasing as America's elderly population grows and its overall quality of life improves. Those trends drive value for the life science asset class, even in an unstable economy. 

Because the asset class's fundamentals are solid, its upside will persist past the market's current headwinds. As a result, healthcare facilitators opt to invest in their properties rather than lease. 

However, the downturn has had an unequal impact on the value of medical buildings; not all property types within the segment are recession-proof. 

The segment has significant untapped potential for investors and developers, provided they approach the sector with the right strategy. 

Outpatient Medical Office Buildings (MOBs) Are A Secular Driver for Life Sciences

One of the biggest drivers of the healthcare sector is outpatient medical office buildings (MOBs). Traditionally, these facilities have been designed to provide outpatient medical services, such as diagnostic imaging, laboratory services, and rehabilitation. 

One of the critical benefits of MOBs is their convenience. Patients can visit them for appointments and procedures without navigating larger and often overwhelming hospital campuses. They provide a more relaxed and welcoming environment than traditional hospital settings, which can help to reduce patient anxiety and stress.

MOBs' comforting nature is a big part of why they have a value that can withstand the tectonic shifts of the current landscape. 

The current population of seniors in the United States in 2020 was 58 million, but the demographic will expand to 73.1 million by 2030. With 21% of the country's residents being 65 or older within a decade, the need for MOBs that treat aging-related illnesses will significantly ramp up. 

But that's only part of why MOBs will bolster the life sciences asset class fundamentals. 

Unlike earlier generations, Baby Boomers are developing chronic illnesses requiring regular outpatient care, like hypertension, obesity, and diabetes. In the past, the oversized, energy-hungry medical equipment used to facilitate the treatment of those issues meant that they needed to be installed in hospitals. But thanks to advances in medical technology, those devices have become more portable and upgradeable. That technological evolution has allowed development teams to run projects with several MOBs, each belonging to a different field. 

The property type also generates higher revenue per square foot than traditional office buildings, making them a solid near-term bet. Still, the inevitability of America's shifting demographics makes them a secular growth trend for the life sciences asset class. 

Investing in MOBs can be a lucrative opportunity for developers, as they offer various services to patients conveniently and cost-effectively. 

"Medtail" Could Be The Future of Mixed-Use 

Another related driver of life sciences value is "medical," a nascent medical real estate concept that involves installing healthcare facilities in retail settings, such as shopping centers, supermarkets, drug stores, and malls. The facilities typically offer various preventive care services, including diagnostic testing and minor procedures, in a retail-style setting. 

Medtail facilities are designed with the patient experience in mind. Typically modern and attractive, they feature modern amenities such as on-site parking, cafes, and waiting areas. In terms of medical services, they are equipped with the latest technology and examination rooms, allowing healthcare providers to offer a full range of services to their patients. 

Medtail buildings are a type that is also more cost-effective to build and operate than traditional hospitals or standalone MOBs. 

However, their larger property cousins do not have zoning challenges because they need to meet the same high standards for quality and safety as traditional healthcare facilities. Mitigating that risk requires careful planning and design and occupiers willing to provide high-quality medical care to patients. However, with the right approach, medtail facilities can provide patients with a convenient and accessible alternative to traditional healthcare facilities. 

Finding locations that provide the highest and best use is also problematic in an economic environment that puts downward pressure on commercial real estate, aside from grocery-anchored strip malls and shopping centers. Medtail is an innovative and promising concept for the medical real estate market, but in the post-pandemic landscape, they have smaller returns for occupiers than it might in a growth cycle. 

With the proper planning and design, medtail facilities have the potential to revolutionize the way that healthcare is delivered and improve access to medical care for millions of people, but development teams might want to hold off placing too many eggs in that basket for the time being. 

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