Research Briefing | Oct 16, 2023

Economic demand drivers support health-related CRE

Even as commercial real estate investment declines, there are still pockets of opportunity in the sector and we think those sectors set to benefit from the turn in the demographic cycle – life science, medical office, and medical retail (medtail) – are best positioned to outperform the broader sector. Even in an era of macroeconomic and interest rate uncertainty, the aging of the population and associated healthcare needs are a near certainty.

What you will learn:

  • Investment in alternative or niche commercial real estate sectors has risen, but volumes have softened to their lowest levels since the start of the pandemic, and we see evidence of capital value declines in certain alternative sectors. Recognizing that these sectors make up a small share of the overall commercial real estate universe, overheating due to supply shocks could lead to weaker performance and pose downside risk for valuations.
  • Without a robust historical time series of performance in these sectors, relying on economic trends to drive investment decisions is essential. Our forecasts for sector-specific demand drivers, like employment and spending, help highlight markets that are likely to outperform.
  • We expect employment growth to support a few of the designated life science hubs over the next five years and expect employment and spending to support medical office and medtail in Sunbelt markets.
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