We assembled a panel of industry experts to tackle this month’s question.
Here’s what they had to say:
Cory Atkins, principal, Atkins Cos. (West Orange)
The health care real estate sector has remained strong over the past several years despite the macroeconomic challenges affecting the industry. Looking ahead, the promise of achieving a soft landing and several pending interest rate cuts in 2024 are signaling the possibility of a more active market as we approach 2025.
Now is a great time for health care real estate investors to take stock of their current positions and prepare for tomorrow’s market conditions. Strategic capital and operational improvements made today will position buildings for long-term success ahead of the expected uptick in deal flow.
In addition, professional office buildings facing low occupancy rates present opportunities for investors to convert vacant spaces into medical use. With the increased costs associated with new development, adaptive reuse is increasingly becoming a viable option for some underperforming buildings.
Jay C. Biggins, executive managing director, Biggins Lacy Shapiro & Co. LLC (Princeton)
New Jersey is finally leveraging its “legacy” pharma asset base. Recent successes include diverse new investments, such as large-scale biologics (BeiGene), cell and gene therapies (Cellares) and CDMOs or contract development and manufacturing organizations (Enzyne), with others in the pipeline. Princeton West, the repurposed former Bristol Myers Squibb campus in Hopewell, also is a reminder that you have to invest in ready-to-go sites with power, water and sewer infrastructure to compete for life sciences production opportunities. Ultimately, New Jersey’s life sciences future depends on patient long-term investment — such as the EDA’s investment in HELIX in New Brunswick, AI in Princeton and Edge Works at Liberty Science Center. The mission-critical last ingredient in New Jersey’s life sciences comeback strategy is workforce development.
Chris Cirrotti, associate principal, Langan (Parsippany)
Recent economic data indicates a noticeable uptick in health care design and construction across the United States. New Jersey is following suit, with planning, design and construction of major health care expansion and development projects on the rise once again. Many of these projects are driven by the lessons learned during the pandemic and the need to improve facilities to deliver a higher standard of patient care and satisfaction.
We continue to see the adaptive reuse of underutilized office and retail space into medical facilities, as well as some new developments anchored by medical care. Our team is providing comprehensive engineering and environmental services for numerous projects involving both inpatient and outpatient services, and we are strategically positioned to provide community-connected care.
The demand and competition for high-quality medical care is robust, and we expect the strong momentum of health care development planning and construction to continue through 2024 and beyond.
Blake Goodman, senior managing director, JLL (Parsippany)
Modern medical networks are following a comprehensive data-driven strategy to find the right sites for growth and to optimize the performance of existing sites.
Demographic, socioeconomic and geographic data is supporting the trend among health care networks toward retail-oriented settings, whether that’s mixed-use developments with a retail component, mall box sites or general retail. Those come with built-in foot traffic, easy access and prime visibility, all of the attributes that health care networks continue to seek as they focus on branding and awareness.
After several years of aggressive acquisition activity, they are now focused on consolidation, bringing disparate health care specialties — from orthopedics to surgical centers, cardiology, imaging, primary care and the like — together in regional hubs that offer the type of access, visibility and parking retail sites afford.
This will create opportunity in the investment sector through long-term credit transactions with health care networks.
Randy Horning, vice president, NAI James E. Hanson (Teterboro)
Health care real estate has been one of the most resilient sectors over the past few years amidst broader economic turbulence.
This strength has not only benefited the health care sector but has also provided a lifeline to struggling traditional office properties. In some cases, adaptive reuse, where applicable, has emerged as a viable solution, allowing investors to repurpose outdated office spaces into modern health care destinations, furthering the growth of health care practices.
As the office market continues to struggle, we can expect to see an acceleration of this trend allowing for a semi or complete conversion of the building.
Over the next several years, the complexity of these projects will inspire the continued growth of highly specialized health care real estate teams made up of experts from across disciplines to accomplish this task. These teams will increasingly become critical partners to investors hoping to bring much-needed health care space to the market.
