Health real estate: a sector at the heart of tomorrow's challenges
At a time when the need for health infrastructure is growing and when demographic and technological changes are profoundly transforming our societies, health real estate is positioning itself as a strategic sector to meet the challenges of tomorrow. Whether through retirement homes, clinics, care centers or specialized facilities, this sector is essential to support the transformations underway and anticipate those to come.
Real Estate Advisor at Societe Generale Private Banking
The outlook for healthcare real estate
Demographic trends are undoubtedly the main driver behind the development of healthcare real estate. New opportunities are emerging with an aging population and increasing chronic diseases. In Europe, for example, the share of people aged 65 and over is expected to rise from 20% in 2020 to almost 30% in 2100(1). Age-related diseases such as chronic or neurodegenerative diseases (Alzheimer’s, Parkinson’s) will increase accordingly, highlighting the growing need for suitable structures.
However, the sector faces significant challenges, particularly in terms of construction and operating costs. Specialized materials and equipment, strict health compliance standards and advanced medical technologies significantly increase construction costs. Furthermore, operating these facilities is costly due to high energy costs, continuous maintenance and management of complex security systems. This pressure on costs therefore requires innovative financing and management solutions to maintain the profitability of investments.
The healthcare real estate sector is undergoing a transformation, with several major trends redefining the landscape in the areas of healthcare system, digitalization, innovation and sustainability.
Evolution of the health system
Patient expectations and care methods are changing, requiring the creation of new types of structures. This is reflected in a growing demand for community-based care centers, ambulatory facilities and multipurpose medical facilities, moving away from a hospital-centered system.
At the same time, the growing demand for out-patient care and the rise of preventive medicine are leading to a diversification of property needs. In such cases, health property must adapt to new forms of care while meeting the need for geographical accessibility, particularly in rural and peri-urban areas.
Digitalization at the service of this sector
Digitalization also plays a crucial role in the evolution of healthcare real estate. With the emergence of telemedicine, artificial intelligence and connected objects, health facilities need to rethink how they operate. Smart, connected buildings that can interact with remote health monitoring devices are becoming essential to meet patients’ needs while optimizing operating costs.
Home automation solutions and remote medical monitoring systems not only enable better patient care, but also more flexible resource management and improved safety within institutions. Through the collection and analysis of health data, it becomes possible to anticipate and plan for health care and infrastructure needs, thus contributing to better resource management.
(1) Source: Eurostat study 2022.
Challenges of innovation and sustainability
As a public sector, healthcare real estate must respond to current environmental and social challenges. The transition to sustainable infrastructure therefore becomes essential for health facilities that have a high carbon footprint due to their specific equipment and their continuous activity.
Sustainable materials, energy-saving devices and renewable energy production facilities are now integrated into the design of buildings to meet this requirement.
Today, we are seeing a transition to a more sustainable, flexible and patient-centered model, where industry players will have to adapt.
Investment in healthcare real estate
Investment in the health sector can be an attractive diversification vehicle for its asset allocation.
Indeed, healthcare real estate is often perceived as a crisis-resilient sector, in part because demand for healthcare is not sensitive to economic cycles. For example, the Covid-19 pandemic has highlighted the importance of having structures adapted to health needs.
In addition, as the population ages and life expectancy increases, the demand for accommodation in specialized reception facilities is constantly increasing. For investors, this type of investment often means a long-term commercial lease, usually guaranteed by creditworthy tenants such as reputable health care providers or government organizations. This ensures predictable cash flows and reduces the risk of asset vacancies.
Industry trends show that the transformation of the health model is underway and significant financing needs are emerging. Private and institutional actors will therefore play a key role in the coming years, complementing public authorities, in addressing the gap between public financing needs and capacities. Partnerships between investors and private operators should therefore be strengthened to support these new models. Operators will use private financing to develop and restructure their operations.
However, a careful analysis of the fundamentals of the sector and a careful assessment of investment opportunities often require the support of specialists to carry out its operation. Your Private Banker is at your disposal for any further information.
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