Healthcare CRE By the Numbers

You can tell a lot about healthcare commercial real estate from statistics. Certainly, that was the case with the keynote presentation that John Chang, senior vice president and National Director Research and Advisory Services of Marcus & Millichap, gave at the GlobeSt.com HEALTHCARE Real Estate event underway at the Andaz Scottsdale Resort in Scottsdale, AZ.

For instance, he noted that people aged 55 and older accounted for a majority of the total healthcare spending in the US and that is expected to rise. “The healthcare space is a growing sector,” Chang said. “National healthcare spending is expected to surpass $5.2 trillion.”

Another data point of interest: The 65+ aged population continues to migrate south. As a result, “growth in [healthcare] real estate has been phenomenal.” 

But his numbers also reveal some weaknesses in the sector. Healthcare has a labor shortage and wage pressure will be a significant challenge for the sector, he says. There is a 1.5 million shortage of jobs and healthcare job openings are at a record high, Chang said. “One culprit is Amazon”, which is paying high wages” and luring burned-out healthcare workers to its warehouses and offices.

Medical office vacancy rates are favoring lower development markets, he said, adding that the limited construction pipeline for the sector also means limited for-sale inventory that is available.  But it also reinforces medical office’s solid performance. “Fundamentally, the medical office sector is still looking good.”

Meanwhile, transaction activity has slowed, causing prices to soften, he said. “Cap rates are about 100 to 125 basis points higher than they were at the beginning of the year.”

Another number that perhaps speaks loudest of all.