Baby boomers fuel rise in healthcare properties, but what about costs?

SANTA ANA, CA - According to a report by the Grubb & Ellis Company, a real estate services and investment firm, the increasing demand for medical services by aging baby boomers will fuel demand for healthcare properties during the next decade.

Robert Bach, Grubb & Ellis’ chief economist and author of the report, said this trend would also help make healthcare more affordable. Hospitals provide the most costly services for care, he said, and by outsourcing such care into medical facilities, it will become more cost-effective.

The healthcare property boom is being driven by aging facilities, growth in patient demand, increased competition and advancing technology, the report states.

The size of the healthcare properties market is estimated at between $700 billion and $750 billion, about half the size of the office market.

According to the report, the aging population will fuel an increase in healthcare spending, as the first baby boomers turn 65 in 2011. As these populations age they will require more medical services, thus driving demand for healthcare facilities.

Bach said this could lead medical properties to outperform other property types.

The report says baby boomers are not only aging, but living longer. The segment of the population for whom growth will accelerate most sharply in the coming decade - the 65-to-84 group - will generate increased demand for all types of medical facilities, particularly medical office buildings and the various services housed in them, the report says.

According to Grubb & Ellis, medical office space is already outpacing traditional office space, as measured by asking rental rates. From 2000 to 2007, asking rental rates for medical office space grew an average of 2.8 percent per year, while rents for traditional office product grew an average of 1.3 percent.

According to the Census Bureau, 80 percent of seniors have at least one chronic health condition requiring ongoing care and 50 percent have at least two – which, the report says, will increase healthcare visits and contribute to the growth in healthcare facilities.

This 65-and-older group will be more likely to have had a better education as well as be wealthier than the current population of senior citizens, says the report. This should bode well for the healthcare sector, as this group will be more likely to use medical services and with more frequency.

As medical technologies continue to grow, providing more option treatments, this will increase physician office visits. In turn, the report says, this will generate demand for the full range of healthcare professionals, who will fill medical office buildings and other types of privately owned clinics and medical facilities.

Today’s healthcare sector is less sensitive to fluctuations in the economy, the report says.

“The looming economic slowdown is likely to make the healthcare property sector, with its non-cyclical growth profile, look relatively more attractive compared to other property sectors, all of which will be affected to differing degrees by the flattening economy,” Bach said.