The Case for Medical Office
Illness, medical conditions, and injuries don’t take time off during economic downturns. Patients require treatment no matter what. That makes the demand for healthcare services resilient. This resilience lies behind the medical office sector’s track record of generating high-income returns with low volatility regardless of the cycle. Because of this, medical offices have the best long-term risk-adjusted return profile compared to other property types.
We anticipate growth in this sector. Demand for medical services continues to grow as the U.S. population ages, especially as more people gain access to health insurance. The subsector also has strong fundamentals with no impact from working-from-home scenarios or supply and demand struggles.
Medical Office Long-term Themes
The 65+ population in the U.S. grew at an average rate of 3% per annum over the past decade - nearly 15 million people. The older the population, the higher the number of medical events requiring treatment. Older adults use medical services at nearly three times the rate of younger people, averaging nearly 40 medical visits per year including wellness visits, dental cleanings, and appointments with specialists. A growing share of these visits occur in medical offices rather than hospitals.
Expanded Access to Healthcare
The Affordable Care Act allowed for over 300 million Americans to obtain health insurance. By 2020 92% of Americans had insurance coverage, up from 85% in 2009. More medical events are being treated and this trend is set to continue to grow as more Americans become eligible for Medicare.
Fundamentals and Performance
Medical office properties have maintained higher and more stable occupancy levels than traditional office sectors. This is compared to the traditional office sector which is much more vulnerable. In fact, the vacancy gap between traditional office properties and medical offices has never been wider. Additionally, since 2006, the medical office sector has delivered on average the highest income returns compared to other property types. Since the sector produces high income and is resilient during downturns, medical office returns are the least volatile of any property type.
Resilience and Growth
Medical office assets quietly generated superior returns over the past two decades with low overall risk. That’s because healthcare services are needed despite the economic environment. Meanwhile, medical offices’ long-term growth drivers, such as favorable demographic trends and increased insurance coverage, are fueling demand now and into the foreseeable future.
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