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Medical Real Estate Remains a Stable Investment Despite Inflation

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Medical Real Estate Remains a Stable Investment Despite Inflation

Medical real estate has always been a stable and reliable investment. Despite the current economic situation and rising inflation, medical real estate remains strong. Medical real estate has outperformed other investments in recent years, making it a smart choice for those looking to invest in this type of property. Read More

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Medical Real Estate Remains a Stable Investment Despite Inflation

A new national survey by CBRE indicates that investors are planning to put more capital into health care real estate in 2022, including life sciences space, medical office buildings, and ambulatory service centers. The findings are based on a survey of the most influential healthcare realty trusts (REITs), institutional healthcare investors, private capital investors, and developers throughout the US, who were asked about their plans for the next 12 months. Of the respondents, 85% believe the healthcare industry is recession-resistant.

According to the report, an estimated $25 billion in equity will be deployed into the health care real estate sector this year. This bullish sentiment is driven by the resiliency of health care real estate during the pandemic and persistent demand for these assets. In fact, 84 percent of survey respondents said they plan to be “net buyers” of health care real estate in 2022. The most popular type of asset among buyers was behavioral health centers, followed by life sciences properties. These trends indicate that investors remain confident in the long-term prospects of the health care sector, despite the challenges posed by the pandemic.

“Health care and life sciences have been historically resistant to economic downturns and continue to be seen as a safe haven for real estate investors during times of economic distress,” said Chris Bodnar, CBRE’s co-head of health care and life sciences capital markets. “As a result, investors continue to allocate more capital to these properties, which provides stability and consistently strong yields.”

It’s no secret that prices for goods and services have been rising faster than usual over the past year. In fact, according to the Consumer Price Index, consumer prices increased 4.2% in the 12 months ending in April 2022–the largest 12-month increase since 2008. But while consumer prices are rising at a rapid pace, health care inflation has remained relatively muted. In fact, according to the Bureau of Labor Statistics, the price of hospital services rose just 1.9% in the 12 months ending in March 2022.

The Consumer Price Index (CPI) is a widely used measure of inflation in the United States. According to the US Bureau of Labor Statistics, “The Consumer Price Index increased 8.5 percent for the year ended March 2022, following a rise of 7.9 percent from February 2021 to February 2022. The 8.5-percent increase in March was the largest 12-month advance since December 1981.”

By contrast, health care inflation has generally been lower than overall inflation, averaging around 2% per year since 2000. In March 2021, Medicare care commodities and services indexes in the CPI rose 2.7% and 2.9%, respectively – the lowest of any category.

We hope that there will be some correction in costs relatively soon. However, making decisions based on the current economic landscape is inadvisable. The healthcare real estate industry will withstand the recession that’s coming because it is such a solid investment. The best strategy is to look for the right deal at the right price. Many healthcare companies are infusing more capital into operational practices to increase market share. Others are moving outside of highly populated cities and expanding their footprints into smaller markets or rural areas where healthcare access is lacking.

As the population continues to age, the demand for healthcare services will only increase. This is good news for investors in medical real estate, as properties such as hospitals and clinics are considered defensive investments. That’s because people will always need access to healthcare, no matter what the state of the economy is. And with an ever-growing population, there will always be a need for more medical facilities.