Behavioral Health Facility Interest Soars in Wake of Pandemic

As the COVID-19 pandemic fades in the distance, it’s left a distinct mark on the behavioral and mental health real estate industry. Research from Colliers, a global commercial real estate service firm, found that this period of uncertainty seeking professional mental health help and treatment. As a result, investment interest soared in these specialized facilities, and investors began acquiring provider practices and real estate.

Behavioral Health Issues Soar, Increasing Facility Demand

According to experts, mental health was initially underreported during the pandemic’s early stages, but a World Health Organization report showed that the global prevalence of anxiety and depression increased by 25% in 2020 alone. Isolation and remote work became further barriers to accessing care, and providers needed to create new and additional methods for patient care. However, the increased demand has led to multiple challenges, says Shawn Janus, Colliers’ national director, healthcare services.

“There’s a tremendous increase in demand for behavioral health services,” notes Janus. “And while providers looked to expand offerings due to skyrocketing demand, they’ve faced labor, capital and operational challenges.”

Marianne Skorupski, director of national office research for Colliers, adds that the diverse and specific needs of behavioral health practices often necessitate different types of facilities based on the care provided. However, establishing or maintaining these locations can be challenging due to factors such as the property’s physical structure and relationships with local government and neighbors. Additionally, some investors face a learning curve with the complex and uncertain health insurance reimbursement structures for patients, which can impact their ability to fund services, support the facility, and drive revenue.”

Aging Infrastructure Hampers Development

While investor interest in expanding behavioral health facilities has increased sharply, existing facilities are sometimes decades old. Of the more than 770 behavioral health facilities across the 48 contiguous United States, only 6.8% have been built since 1970. Janus says that investors are looking at innovative approaches, such as converting other building types and evaluating the feasibility of new stand-alone behavioral health facilities.

Investors and developers are also evaluating partnership structures and telehealth opportunities, Janus notes, although virtual options are not applicable to all behavioral health services. He also sees the exponential growth in demand for behavioral health services attracting legislative attention, paving the way for potential positive regulatory reforms.

Supply and Demand Imbalance Creates Opportunities

Skorupski sees the future brightening and says the lack of supply in behavioral facilities will only spur real estate investors to capitalize and increase building momentum in the sector.

Investment in the property type has grown $3 billion in the past 10 years, including $1.3 billion in trades in 2021—representing 41% of that total. Medical property sales since 2020 have totaled over $310.8 billion, according to MSCI Real Capital Analytics data, and more than $18.3 billion has been invested in medical buildings through May of 2024, the second-highest total sales volume for the same period since 2020.

“As more behavioral health projects are undertaken, investors and lenders will have increased confidence with their underwriting and benchmarks,” Skorupski predicts.