Medtel (Medical Retail) has been growing over the years due to changing demographics, technological advances and the need for diverse, specialized, affordable and convenient access to healthcare. However, in the wake of COVID-19 and the demographic shift in the US that has been occurring for several years but has expanded rapidly since 2020, the growth of these trends has become even greater. From the perspectives of healthcare providers, patients and real estate investors, it is essential to understand these changes and think about the implications ahead.
At OrbVest, 2021 was our busiest year to date, with 10 acquisitions closed. COVID-19 has tested and validated our strategy, demonstrating the strength and resilience of the healthcare asset during uncertain times. We collected an average of over 95 per cent of the outstanding rent of all our tenants in our buildings. Compared to the recent performance of traditional retail and commercial office real estate, the differences are enormous.
With covid winners and losers, demographics and population growth trends accelerating migration to the Sun Belt and spurring innovation in the healthcare sector, Medtel is a direct beneficiary of the pandemic-related disruptions in the healthcare system.
Medtel will not replace hospitals. But these properties are important components and additions to our healthcare system. Medtel can help in providing the population, i.e. senior citizens, with affordable, specialized and easily accessible facilities in the population centres.
The rise of Medtel is a fascinating hybrid between healthcare and retail. What is happening is the increasing prevalence of healthcare facilities in retail centres. With the future of brick-and-mortar retail, and the availability and affordability of shopping centers declining in competitive real estate markets, healthcare tenants are shifting to retail centers. For example, look at recent deals involving 700 VillageMD primary care clinics at Walgreens and Walmart’s partnership with Oak Street Health.
In a recent survey, Tether Advisors found that, on average, “nearly 80 percent of private equity, commercial real estate and retail healthcare respondents believe Medtel investments will increase in the coming year and that COVID-19 has hit the sector.” strengthened the outlook.”
A report by Grandview Research also showed that the size of the US retail clinics market was approximately $1.4 billion in 2016. By 2025, it is projected to grow rapidly at a CAGR of 20 per cent.
But what is really driving Medtel’s growth?
The increased demand for real estate from the segmentation of wellness and acute care locations is a driver for Medtel’s growth.
Medtel has been a growing real estate trend even before the pandemic. But the pandemic accelerated this growth primarily because of how effective the health facilities division has been, especially when it comes to preventive wellness.
There has been a shift from the hospital as the foundation of American health care, to a division into more specialized centers for specific medical needs. When they had dedicated facilities outside hospitals during the early waves of the pandemic, ambulatory care and outpatient care actually worked better. The “medical home” model was also a big pandemic winner, through the clustering of primary care and specialized care in consolidated locations with services such as imaging, pharmacy and laboratories. According to JLL, “the pandemic will likely further a trend for hospitals to focus more on critical inpatient care as preventive medicine moves to more convenient locations in the center of the demographic.”
Demographics are also driving the healthcare segmentation with increasing demand for preventive and personal care. But this is not exclusive to seniors. Millennials and working parents want specialized and preventive care not only for themselves but for their children. It could also be a result of Medtel’s convenience factor.
Convenience, regardless of age group, is a primary driver for Medtel’s growth
Many real estate players are focusing more on traditional retail locations for medical properties due to proximity and convenience.
There is not necessarily a universal definition of convenience for every age group. Some price convenience for shopping features. Other value facility to population centers. Some value proximity to their homes or work places. But this is only part of the equation.
Convenience is another byproduct of demographic shift and segmentation. According to healthcare real estate firm HBRE, due to the rise of MedTel, smaller towns and remote areas that once had little access to medical facilities are now seeing more options. Hospital numbers are on the rise, and navigating these facilities can be difficult. You have to consider all aspects of the integration of convenience and lifestyle, no matter what age group you analyze. In the long term, this could even be a trend. Hospitals will probably focus on high-acuity patient care in the long term, opening up the need for additional real estate dedicated to low-acuity, low-cost facilities in more accessible locations.
When evaluating real estate acquisitions for OrbWest, we are looking at macro factors such as population growth and employment growth, but also factors such as traffic patterns, new road construction, parking availability, visibility from major highways and roads, proximity to local hospitals and so on. directly affect the value of our assets.
Looking to the immediate future of healthcare commercial real estate, and with COVID-19 still on our minds, it is clear that the need for diverse, specialized, affordable and convenient access to healthcare is growing. This has attracted the attention and interest of institutional investors in acquiring medical office buildings and Medtel properties in areas with large, stable populations or projected population growth, particularly in the Sun Belt states.
Martin Freeman is the co-founder and CEO of OrbWest, a global real estate investment firm.
