The healthcare real estate sector has undergone specific changes as the medical industry worldwide was faced with challenges during the pandemic. Investment trends in this sector reveal how pervasive the pandemic has been. The healthcare real estate or the HCRE is smaller than other commercial real estate sectors, but capital flow remained steady as the need for healthcare increased during this period.
Private buyers and equity were the main sources of investment. You can check on sites like https://www.hprgrealty.com to find out more on this subject. Here are some trends that the industry experts noticed.
1. Impressive Cap Rates
With more and more people working from home, the cap rates increased by almost 50 basis points in the case of multi-tenant medical properties. The numbers were slightly higher in the case of single-tenant properties. With cap rates increasing, the values went down for a while, but occupancy rates increased again in the latter part of 2020, rejuvenating the cash flow. Prices started rising again with no noticeable slowdown evident.
The debt markets in March and April 2020 had to finance some large portfolios with significantly lower leverage. This had caused uncertainty in the market. However, with the market improving, the lenders are back where they belong, increasing their leverage. They are financing more of single assets, and the sector is again becoming competitive as availing lower capital is easier.
3. Rent Collection
Private investors are also collecting high-rate rents again. During the pandemic, many tenants had approached investors to lower their rent amounts for space that they might not even need or may be forced to forego. The tenants also concentrated on cost structure which helped providers in determining lower-cost settings. They also considered moving off-campus.
Rent collection trends from REITs at the beginning of the pandemic showed that many of them had guided their tenants to applying for loans, offsetting deferred payments. As a result, they managed to maintain about 99% of collections even during the pandemic.
4. Recent Developments
Healthcare providers have used the duration of the pandemic by looking into areas that are most important to them for spending money on. Some providers have chosen to invest in better and more advanced medical equipment rather than on real estate. The development market was more or less fully operational by June 2020, and there are no predictions of a major slowdown in 2021.
5. Lower Delivery Costs
Some new and non-traditional developers have sought help from REITs for capital and for delivering medical property projects. The lower delivery costs have motivated many developers to partner with health systems and medical providers. Doctors are keen on becoming partners even before starting a project. More physicians have been looking to opt out of the real estate, but the REITs have made them more involved due to lower delivery costs.
Long-term planning and physicians and developers working together is the key to ride over the pandemic. The projects need to be economically feasible, all the while in keeping with regulations. Co-investment is a rising trend that will ensure the delivery of modern healthcare.