How Healthcare’s Disruptors Are Reshaping Real Estate

Investors are responding to the changing delivery model 

Disruption within the healthcare system is significantly reshaping the real estate market, particularly with consumers and providers taking a retail approach to delivery. As a result, two trends have emerged in the healthcare real estate space: Practitioners are demanding larger floor plans that offer “common sense” design; and healthcare services are popping up in locations normally reserved for pizza parlors and clothing stores.

This kind of disruption leads Terrell Gates, founder and chief executive officer of Virtus Real Estate Capital, to believe the future is bright for healthcare real estate—a sector he pegs at being valued at as much as $2T. He cites the 10,000 baby boomers who become seniors daily—and the senior population’s tendency to see twice as many doctors and spend more than five times as much on healthcare than younger Americans—as reasons that healthcare is likely more immune to economic cycles. That kind of sustainable demand can only mean good things for those investing in healthcare-related real estate.

The increase in patient visits isn’t just forcing practitioners to rethink square footage—it’s also changing where facilities are built and how they’re designed. In the past, medical facilities tended to focus on a specialty, so patients had to go to multiple locations to get comprehensive care. Today, physicians of varying specialties prefer to cluster in the same complex and work together, and that can result in more efficient, collaborative care.

And both physicians and their patients are driving a shift toward convenience, which means healthcare delivery is becoming more like traditional retail. Providers and real estate developers are bringing healthcare to high-traffic locations, rather than far-flung, standalone medical centers. That’s why consumers are seeing more healthcare providers popping up in shopping centers.

Gates says medical real estate is its own specialty, and investors need to choose partners with particular expertise. “There are a number of potential landmines that go into [investing in medical real estate],” says Gates. “It is not quite as easy as other categories.”

It not only requires an understanding of the changing nuances of the healthcare delivery system and increased consumer model, but also having strong relationships with both providers and large healthcare systems.