telehealth is changing healthcare real estate

Telemedicine, lifestyle, wellness trends and COVID-19 are disrupting healthcare

August 24, 2020

There's no doubt the healthcare field has been disrupted by COVID-19. While trying to navigate the worst pandemic in recent history, healthcare providers were forced to innovate and accelerate many industry trends by as much as half a decade in order to continue to provide critical patient care.

Telehealth came to the forefront at the onset of the pandemic. While virtual-care technology has been in existence for many years, it was restricted from expanding due to limitations on reimbursements, liability, and HIPAA. Regulations have been temporarily lifted to provide patient care during COVID - 19, but without addressing longer-term confidentiality and the unresolved factors of payment, restrictions are expected to be tightened post-pandemic.

In recent years, the U. S’s two largest population groups —millennials and seniors — have been reshaping the healthcare industry by demanding a more personal long-term, preventative approach to health. As a result, wellness and acute care have become increasingly segmented in healthcare real estate and functionality. The pandemic will likely advance the trend for hospitals to focus more on critical inpatient care as preventative medicine moves to more convenient locations in the heart of demographic centers.

As Audrey Symes, JLL’s Director of Healthcare and Life Sciences Research, tells James Cook, even as healthcare delivery models change, medical office investments will remain highly favored due to their defensive investment qualities — long-term leases, stable occupancy and income, strong tenant credit quality, and tenant retention. Our latest research shows that through the most acute phases of the pandemic, MOBs have distinguished themselves by having minimal rent relief requests and high collection rates. As investors reactivate and seek out safe havens, these qualities, along with a few key cyclical drivers, are expected to promote the standing of MOBs in the new investment environment.

By adapting accordingly, healthcare organizations and investors can capitalize on durable, demographic-supported, long-term demand.

James Cook: [00:00:00] The last time you met with your doctor, did you do it on a video conference call? If you did, chances are that was the first time you'd ever done it. That's because telehealth is exploding right now because of relaxed regulations around COVID-19. So does that mean that less people are going to go to the doctor's office in the future?

[00:00:19] And that medical buildings are going to be smaller? I don't know, let's find out. This is building places where we look at the world of commercial real estate through the eyes of the experts that study it every day. My name is James Cook and I research real estate for J L L today. We're calling up medical real estate expert, Audrey Simms.

[00:00:40] Audrey Symes: [00:00:40] My name is Audrey Simms and I am the director for the healthcare and life sciences research group here at JLL.

[00:00:47] James Cook: [00:00:47] I know that you just finished a new healthcare real estate outlook. What do you think is, is the, the biggest trend that you saw as you're writing that report?

[00:01:01] Audrey Symes: [00:01:01] I would say that obviously COVID with the elephant in the room, not just the immediate effects of the pandemic, but how it's going to play out for medical office and other health care real estate.

[00:01:11] Over the next several years, we had three major themes in the report. One is the effect of COVID on telehealth because it basically started from a base of virtually nothing into projected 1 billion calls by the end of 2020. We think that COVID kind of sped us about five years into the future. Yeah. With tele-health which the technology exists.

[00:01:33] It did for, it has existed for it for many, many years because of regulatory and policy restrictions. It hasn't taken off the way it was, was forced to over the past couple of months. Also, another interesting theme was the existing stratification between wellness and acute care was furthered by COVID.

[00:01:51] And those are really now more and more, two different categories you have. For many years, you've had ambulatory practices moving off campus of hospitals. And now that's really accelerated because of the need to keep things separate. And the idea of wellness is a hot commodity, which had also been bubbling for a couple of years.

[00:02:09] And now it's much more important as like the ultimate luxury. Good. But in terms of the real estate medical office really distinguished itself during them most acute phases of COVID. Not many rent relief requests, high collection rates, lots of interest from investors due to the demographic led as meant thesis.

[00:02:28] So that was also a tailwind for the sector.

[00:02:31] James Cook: [00:02:31] Okay, so stratification. So there's two categories. You've got, it sounds like on campus and off campus will cause that divergence in the beginning and now how's it accelerating?

[00:02:43] Audrey Symes: [00:02:43] Gosh, back 10, 15 years or more, the technology got better and they were able to do procedures off campus that prior to that weren't possible.

[00:02:52] And then as you know, with real estate important things, location, location, right? So as ambulatory practices, we're able to locate closer to demographic centers rather than on a hospital campus, because it was the convenience and the accessibility and kind of the like natural advertising of people driving by it or walking by it.

[00:03:11] We helped popularize those mob centers. So then with COVID of course you didn't want to go anywhere near a hospital, you know, if you didn't. Absolutely. We have to. So that kind of really distinguish the idea between acute care and elective care. It really just accentuated the difference between those two categories and coming alongside.

[00:03:33] It was this idea that wellness is kind of a lifestyle. It shows up in retail, it shows up in recreation and it shows up in. Healthcare and all of those things kind of combine in the consumers and to distinguish it from true acute

[00:03:48] James Cook: [00:03:48] care. When you say that wellness is a luxury, what does that look like?

[00:03:55] Audrey Symes: [00:03:55] I think has been popularized quite a bit due to demographics because the millennial generation that's really hitting peak income right now, heading up households with young children.

[00:04:06] That's been a really influential cultural thing to focus on, not just treating things at the point of acuity, but also. Focusing on lifelong wellness, which includes exercise, mental and emotional wellness that I think our generation has is much more open to and interested in and willing to pay for. Then prior wellness is really something that is a big focal point in terms of self care, in terms of.

[00:04:32] Investment in the future. And it's something that people want to see reflected. Then all of the choices they're making, their retail choices, their recreational choices and their practitioner choices.

[00:04:44] James Cook: [00:04:44] You've got this trend of, you know, sort of the model where you've got the hospital and the one side, and then you've got these satellite off-campus stuff.

[00:04:53] Then you've got the other trend of wellness. Is there a point where that merges and you have maybe a development that's made up of off-campus medical services combined with wellness retailers.

[00:05:07] Audrey Symes: [00:05:07] We've seen that quite a bit in terms of. Medical office coming into retail spaces, because at the same time that medical office is becoming more popular.

[00:05:17] Yeah. You've got retail spaces available. So if you think of a shopping center in a suburb with a lot of youngish families, you drive up, you go to your whole foods. Maybe your primary care physician is right there and can give you a list of stuff, buy vitamins and food and stuff like that. Maybe your dermatologist is there and maybe a skin clinic is there maybe a massage.

[00:05:40] There may be like a salt cave or whatever you want to call it. Everything is kind of around that same theme. I also think that there's a trend for primary care physicians, which have lower margins to be located with specialty care. So if you go to one place to see your primary care doctor and he, or she wants to see you see the gastro, well, maybe the gastros upstairs, and that makes it that much easier and can also integrate fluent compliance, grouping all these things together either to make it convenient and accessible to a particular demographic is really.

[00:06:12] A huge trend in the industry, but from coast to coast, we've really seen a lot of transference of medical office to retail. I mean, there's some issues. It doesn't always work out. Obviously medical office has like more intense HVAC needs and water in different sight lines and that kind of thing. So it's not exactly a home run in every single instance.

[00:06:32] We do think it's a trend to watch.

[00:06:34] James Cook: [00:06:34] Because of COVID. We had a relaxing of regulations that allowed us a real new access to telehealth. Does that mean a reduction in the total square footage of medical space?

[00:06:47] Audrey Symes: [00:06:47] Well, for one medical real estate and hospital campuses is kind of like turning around a battleship and it doesn't happen all that quickly.

[00:06:56] I do think in the future, you might have less public space, like waiting rooms and lobbies because you'll have more online registration. You could have a kiosk where maybe you could have your tele-health appointment and then come in and go to the kiosk in the old lobby space and get your blood pressure taken.

[00:07:12] Or maybe you get a vaccine there or whatever it is, you might have a reduction of space or some systems might choose to keep more space in order to preserve social distancing. It really depends on the population. I also think that. Doctors will want to keep some on campus space. You know, the easiest way diagnose still is to actually obviously see the person you're going to miss certain things.

[00:07:35] You know, a lot of times he'll go into the doctor for one thing and they might stumble on something else while you're there. And that is probably harder to replicate with tele-health I think where telehealth will really stick. Is triaging patients. In fact, Northwell health in New York, which is the new York's primary medical system developed an excellent triage system during the New York city peak of COVID-19 to keep almost 80% of COVID patients out of the hospital.

[00:08:00] And they're now sharing their best practices with physicians in Florida that are kind of hitting an accelerated caseload.

[00:08:07] James Cook: [00:08:07] I'm thinking about the last time I was in the doctor, I sprained my foot when I was running and that's not something I could do over zoom. He had to go in and say, does this hurt?

[00:08:16] Does this hurt? You know, you need x-rays, you're not going to stick your foot on the webcam.

[00:08:21] Audrey Symes: [00:08:21] Well, we think telehealth is great for is basically increasing touch points to the healthcare system. So. It keeps people connected to their doctor and it can keep some concerns from escalating. It can also help when there are circumstances where it would either be tele-health or nothing.

[00:08:39] James Cook: [00:08:39] Let's turn now to the real estate world and talk a little bit about sales and leasing

[00:08:44] Audrey Symes: [00:08:44] medical office has very high retention, high occupancy throwing off cash predictably. And so that's a big positive for the sector. There also tends to be a limited supply when compared to a typical office, it's less likely to be oversupplied.

[00:09:01] It's got a longterm demand thesis. That's demographically based.

[00:09:06] James Cook: [00:09:06] Are people investing in medical office right now.

[00:09:09] Audrey Symes: [00:09:09] Yes, it's actually a really popular investment vehicle. A couple of years ago, medical law, an investment jump to a new plateau. Well, what it was in 2012, and we think that more transactions will just help in terms of cap rates and transparency, and really making this, not just niche sector, but a really attractive general sector for.

[00:09:29] Private equity REITs. In some cases, there's a lot of dry powders still right now. And we really feel that it will be attracted to the certainty that medical office has to offer.

[00:09:42] James Cook: [00:09:42] So Audrey, I know all of our listeners want to learn more. Where can they get a copy of the healthcare real estate outlook report?

[00:09:51] Audrey Symes: [00:09:51] You can get a copy of the report from our website, from the research section of JLL about comm.

[00:09:57] James Cook: [00:09:57] Excellent. Well, thank you so much for joining me today.

[00:10:00] Audrey Symes: [00:10:00] Great. Well, thanks for having me.

[00:10:03] James Cook: [00:10:03] Do you have a comment on today's show or a question you'd like for us to tackle in a future show? Well, you should tell us about it by leaving a message on the podcast hotline.

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