Digital Health Funding Has Fallen to 2016 Levels

Medical office has been a strong CRE sector for years and has particularly shone through the pandemic period. It brings in traffic with the feeling of something that benefits the community; supply hasn’t outpaced demand, which has remained strong; tenants are long-term; and there is usually good revenue and credit to safeguard lease payments.

However, there is tension as the healthcare industry pushes on digital medical services and telemedicine to broaden the reach of care providers, increasing efficiency. With monitoring, testing, consultations, wellness, health data, and other digital services, there would seem the potential to lessen office visits and, eventually, have a potential impact on medical office demand.

That could be, although it is hard to imagine how a health care practitioner could fully practice without any physical interaction with a patient. However, if basic vitals could be taken remotely, imaging and other testing more easily and inexpensively done in non-traditional settings, even insurance processing sped up to reduce the need for as much office staff, medical facilities could potentially see significant changes.

But for that to happen, there would have to be continuing investment in new digital technologies, and there has been a significant reduction, according to CB Insights. The firm, which tracks private companies and investor activities, noted that digital health funding has falling to 2016 levels, with the number of deals with startups hitting the lowest count in a decade.

According to the firm, funding in 2023 Q3 hit $3 billion, with the number of deals at 247, lower than any other quarter since the opening of 2019, and far off the pace of 2021 Q2, where investment was $15.2 billion in 708 deals.

Care delivery and navigation tech was still the leading category last quarter, with 105 of the 247 deals and $1.3 billion out of the $3 billion total.

Year-to-date average deal size in 2023 is $11.6 million. That’s higher than in 2019, but off the market of $16.0 million in 2020, $23.4 million in 2021, and $14.3 million in 2022.

The biggest drop in median deal size came from asset and investment management, at $12.0 million.

However, balancing medical office is the need for more space in life sciences. The largest amount of funding, $1.9 billion, took place in the U.S. About 64% of the deals year to date in 2023 are early stage, which would suggest a growing need for real estate for offices, development facilities, and labs.