All sectors of commercial real estate have been affected by COVID-19 and the resulting shutdown of the US economy. Healthcare is no exception and, indeed, the news has been highlighted with stories of overwhelmed hospitals in urban areas, and conversely, medical facilities experiencing a drastically lower volume of patients.
According to a national survey, conducted by Leede Research, more than 1,250 adults were asked how they’re accessing healthcare in light of the pandemic. Respondents cited only 31% feel “comfortable” visiting their doctor’s office for elective procedures or minor emergencies, in fear of contracting COVID-19. All of this has led to significant changes in attitudes and behavior toward standard health care services.
Another agent for change that was exacerbated by the pandemic is telehealth. The world has been connected virtually out of necessity during our global quarantine. Virtual care options have now become commonplace when previously they were the rare exception. According to the Leede Research survey, there has been triple the amount of “virtual care” appointments over the past 3 months. We discussed this trend with Dilan Luvis, Manager at KPMG Advisory, Health & Life Sciences. Dilan emphasized that “with low utilization and patient census, providers are shifting to telemedicine and alternative work settings to continue to drive patient volume and operations, but they are also rethinking their enterprise strategy on how to optimize their space, restructure debt, and reduce risk to prepare for the changing healthcare environment.”
For real estate professionals focused on healthcare, a key question is how to analyze risk and opportunity in a drastically changing sector.
First, we recommend tracking consolidation of healthcare companies. Larger providers are acquiring small practices and specialties in their communities to immediately expand their footprint closer to their patients. In return, the smaller practices benefit from the negotiating power that larger providers have with insurance companies. There are real estate opportunities in these business transactions as the smaller, satellite facilities receive an instantaneous credit bump from the new parent company guarantee.
Second, we expect opportunities to arise as healthcare providers consider right-sizing their portfolios and reducing their real estate costs. Facilities costs and maintenance are traditionally the largest expense for providers. Additionally, the use of telemedicine has decreased the time doctors need to be in an office with a full staff. Practices are reducing their occupancy cost by sharing non-core facilities with partners. They are also exploring sale-leasebacks and lease renegotiations which provide investors with opportunities to purchase and structure more conservative leases.
Ultimately, COVID-19 has accelerated trends in healthcare that will make practices more efficient and able to provide affordable care to their patients. We expect to see healthcare come out stronger post pandemic. Therefore, we encourage investors to research and prepare for the new opportunities on the horizon.
Britt Raymond is vice president at SRS National Net Lease Group. Kyle Fant is first vice president at SRS National Net Lease Group.