Increasing demand and substantial investments have driven growth in healthcare. In 2023 alone, hospital construction projects surpassed $28 billion, signaling promising investment potential.

Various investment opportunities exist in this domain—healthcare real estate investment trusts (REITs) present а potentially attractive avenue. In the US market, Community Healthcare Trust, which holds а broad portfolio of facilities, including rehabilitation centers, acute care hospitals, and behavioral health centers, is one area investors can consider. Another viable option, CareTrust, focuses on healthcare and senior living properties, capitalizing on the consistent demand for these services. Another option, Medical Properties Trust, with its domestic and international holdings in hospitals and urgent care centers, offers investors competitive returns and dividends.

Medical office buildings (MOBs)—housing healthcare providers and support service delivery—represent another investment. The steady demand for healthcare services, long-term leases, and resilience to economic cycles make MOBs particularly appealing. The COVID-19 pandemic highlighted their essential role as demand for these facilities surged.

Regardless of the investment type, investors should grasp key factors that drive success in healthcare real estate. Location and market dynamics are critical, with demographics largely influencing investment success and viability. Investors in areas with aging populations may consider investing in senior and assisted living facilities and outpatient clinics over other healthcare properties. Pediatric and obstetric facility investments thrive more in family-centric areas with a higher birth rate. Universities and other learning institutions present opportunities for wellness, mental health, and rehabilitation facilities.

Policy considerations are also crucial when evaluating healthcare real estate investments, as they directly impact the supply and demand for medical facilities. For instance, federal policies that increase funding for preventive care can drive demand for outpatient facilities. Advancements in medical technology are equally vital as related policies can create the need for specialized healthcare spaces. Policies promoting telehealth can reduce the need for traditional healthcare spaces, prompting investments in digital health platforms, virtual care services, and medical technologies that enhance patient access and efficiency.

For healthcare real estate investors seeking active investment strategies, involvement in developing and expanding properties can help. This approach may entail participation in design and construction decisions, such as approving proposals and ensuring compliance with healthcare regulations and standards. Facilities may also require redevelopment or expansions; investors should secure the rights to approve significant changes and decide whether to seek funding for redevelopment or adjust rents post-upgrade. Active involvement during development and redevelopment helps investors ensure projects are completed on time and within budget.

Investing in healthcare real estate comes with unique risks intrinsic to the sector. Due to the sector’s heavy regulation, investors face heightened reputational risk, particularly concerning the quality of care and legal issues due to negligence or compliance failures tied to the services healthcare professionals provide. Additionally, unlike other real estate investments, healthcare facilities demand high upfront capital for construction, furnishing, and ongoing expenditures to meet strict legal standards and community expectations. The highly specialized nature of these facilities also makes repurposing them for alternative uses difficult and costly.

Investors should also consider the mounting cost containment pressures within the healthcare industry. Rapidly growing patient care expenses in recent years have considerably tightened profit margins for medical facilities and providers. As such, healthcare real estate investment trusts (REITs) are in a tough spot as the usual strategy of raising rents to make profits is becoming less effective. Maintaining good returns requires assessing healthcare tenants’ financial sustainability and seeing how well REITs can adjust to the increasing need for lower spending in the healthcare sector.