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South Florida is on the verge of a major statewide demographic shift, with impacts that will ripple through the healthcare economy in many ways. Currently home to the highest concentration of older residents in the nation, more than 3.3 million Floridians are 65 and older, with 1 in 20 now 80 years old or older.

With continuing migration into Florida and increased longevity, nearly 1 in 4 Floridians will be 65 and older in 2030, according to The Florida Legislature Office of Demographic Research.

This growing population sector will certainly increase the local demand for medical care, but will there be enough medical real estate to keep up?

Real estate development and demographics go hand-in-hand. Our aging population will require more medical care.

Medical providers will need to prepare in advance for the demographic shift. Physicians must prepare for expansion. Diagnostic and treatment centers will need additional locations. Hospitals will need to expand outpatient services, on-and-off campus offices, and possibly acquire more medical practices.

Considering these needs, the current commercial real estate market presents formidable challenges to medical providers.

Construction costs are up and vacancy rates are down, making renovating and leasing existing space more difficult and cost-prohibitive. Regarding factors limiting construction of new medical office buildings, the apartment boom has driven land prices so high that office developers cannot compete to purchase sites.

Lenders have financed many new apartment projects but shied away from speculative office development. Medical office requires more parking than many other uses, thus requiring more land for development. Will these costs be passed on to the patients or will they lower profits for medical providers?

This looming demand for property to build patient treatment facilities likely will require creative solutions such as infill development, repurposing existing properties, and utilization of nontraditional properties for medical care.

For example, there are many “big box” retail sites (think Sears, K-Mart) that could easily be converted to medical uses. The parking is there, and the structures are sound, requiring only interior renovation.

Will investors continue to bring funds to medical office REITs and other medical properties? There is lingering uncertainty about the long-term impacts of the Affordable Care Act (ACA) and the Tax Cuts & Jobs Act (TCJA), including how many people will be insured, how leases will be treated for accounting purposes and other investment considerations associated with purchasing, leasing and owning.

Another big question is how new technologies, particularly telemedicine, will reshape South Florida’s healthcare delivery system. This may upend the traditional “bricks and mortar” medical office to a degree none of us can predict.

Despite various reasons for uncertainty, the coming increase in demand for medical services should keep investment in medical properties at a high level. In fact, in 2016, 2017, and 2018 to date we have seen very healthy investment and development in healthcare real estate.

On a national scale, according to data released by Revista and Healthcare Real Estate Insights (HREI), outpatient medical real estate development projects totaling nearly

$7.7 billion in construction value and 19.4 million square feet were completed in 2016, while another 17.3 million square feet of outpatient projects with a value of almost $6.5 billion were started.

Locally, in 2018, Cleveland Clinic Florida opened its new, three-story, 73,000-square-foot Coral Springs Family Health Center. Built for about $33 million and equipped for another $20 million, the ambulatory surgical center houses 17 medical specialties, imaging and diagnostic services.

As the aging population continues to shape the future of healthcare real estate in South Florida, healthcare real estate developers will face challenges related to finding land and existing buildings at a reasonable price. End users, including hospitals, physicians and diagnostic centers, will have difficulty finding affordable space to lease and contractors who can perform at an affordable level.

Navigating this real estate landscape demands market knowledge specifically as it pertains to healthcare providers. Expect to see emphasis on creative long-term options for renewal and expansion as a hedge against diminishing supply and rising costs.

Brokers, attorneys and appraisers who are experienced in the healthcare real estate sector will be focused on guiding all players through the markets and locating “deals.”

Source: Miami Herald