There will be significant growth in Healthcare Real Estate in the next ten years. But in what areas?

Implications: For one reason, this industry has outperformed the commercial average for the most recent eight years. Secondly, demographics are driving medical services. More of the population is aging. People are living longer. And Medical technology is improving at a rate that provides new and better healthcare services. Thirdly, there is never a down year for Healthcare space. Whether there is a recession or not, the demand for Healthcare services continues.

Analysis:  California, Florida, Texas and Illinois were mentioned in the article as accounting for one third of the Healthcare starts in 2007. They are also states with growing populations. And where the population grows, the baby boomers are a part of the equation. More importantly, the need for Healthcare services is an important part.  Even in the other 46 states, there should be opportunity for Medical office space, etc.  There is also another factor that was not mentioned in this article. That is the average age of the assets for the Hospital industry. It was 11.4 in 2007 according to Lester, Miller and Wells, a Public Accounting firm. What does this mean? It means that it will soon be time to upgrade and/or replace many physical plants and hospital medical equipment.   If the authors of the article are correct about the growth in the over 65 age group from 2010 to 2020 that represents significant revenue to Healthcare providers. In our hospital, 55% of the revenue is from Medicare reimbursement already. The obvious conclusion is that senior citizens have more health problems than the average person. If so, that means more revenue from this age group. Also, most seniors have Medicare coverage or some form. Many people under the age of 65, even those employed, have little or no healthcare coverage. If a third party is paying for your care you are more likely to see medical treatment. There is another factor. People over 65 generally do not work. They have time to visit the doctor. We have seniors that eat lunch in our hospital but they are not here for Healthcare. In other words, this is a good subset of the population to serve. Seniors have Healthcare needs and they have the time and a revenue source to obtain treatment. Try marketing a service like a Prostate examination to working men in the age group of 25-39.   The article discusses the decline in the number of hospital beds. Aside from the obvious factor of the inconvenience of spending a few days in a hospital, there is more to the trend to outpatient services. It is costly to provide 24 hour care. Labor costs (nursing, radiology, laboratory, dietary, housekeeping, maintenance, respiratory therapy, etc.) plus utilities are oftentimes more than the reimbursement. If Medicare pays the hospital less than they spend on an inpatient, the hospital would prefer to provide services on an outpatient basis. If an insurance company is involved, they may demand the service be provided on an outpatient basis. Here we have the convergence. The patient, their families, the hospital and the third party payor all prefer an outpatient procedure. There are few issues in this industry where all of these parties agree. Since that is true, the investments including venture capital are flowing to outpatient facilities (e.g. cancer centers) rather than inpatient hospitals.