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A Clean Bill of Health for the Medical Office Sector

Healthcare real estate will continue to grow over the coming decades. In fact, healthcare is the fastest growing sector in the United States economy, counting for nearly 1/5 of GDP. Medical facilities in the United States also recover much more quickly than other real estate sectors. This is due to the essential services they provide. The momentum should continue as the healthcare sector transforms over the coming years.

How Medical Offices are Playing an Increasingly Important Role

As healthcare evolves, more care will be administered outside of a hospital environment, favoring cost-effective settings much as medical offices. This is particularly true for specialist practitioners that cannot deliver treatment via telemedicine. Specialists have shown they boast a strong rent growth in the medical office sector. We believe these facilities will be insulated from a potential increase in telehealth. This includes offices that provide traditional outpatient treatments like dental care and specialized medicine.

The shift is a nationwide effort to reduce healthcare costs, driving outpatient medical office demand. Revenue from outpatient services has nearly doubled from 28% in 1994 to 49% in 2018. Medical office properties that cater to higher acuity procedures are most resistant to the increased trend of telemedicine, e-health, and home healthcare.

Medical Office Performance and Ownership

Having a medical office facility requires a strategy built on both industry experience and collaboration with healthcare providers. Three top strategies are:

Build-to-Core Strategies - for development of medical office, backed by long-term credit tenancy of healthcare providers.

Conversion Opportunities - from traditional office or retail to medical office to meet increasing healthcare demand and drive returns.

Direct Collaborations with Demand Source - including hospitals and universities to capitalize on complex healthcare ecosystems and underlying long-term demand.

While certain areas of real estate can be impacted by economic conditions, the medical office sector is not one of them. The demand is growing for new medical office services, as well as life science centers that conduct medical testing, research, and development. The shift from hospitals and larger health systems to smaller medical offices is a trend that is here to stay.

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