Investors Eye Healthcare Real Estate as Top Choice for Capital Deployment Article originally posted on Globe St. on December 3, 2024 SCOTTSDALE, AZ—Like other real estate sectors, momentum began building for healthcare deals in July. Unfortunately, in the past 30 days, people have pulled back a little bit, John Chang, SVP of Marcus & Millichap, told the audience during the opening keynote session at GlobeSt.com’s Healthcare conference on Tuesday. But prospects for healthcare and commercial real estate in general remain bright, he said. In fact, he thinks healthcare is in a better position than the other sectors. “Healthcare real estate is gaining ground, and we are seeing more money come into healthcare real estate than in other real estate sectors.” Demographics are the main driver for healthcare demand and at this point in the cycle they favor the asset class. “The demand for healthcare services will continue to rise, putting pressure on the healthcare sector,” Chang said. “By metro, the population growth is concentrated in the Sun Belt, but even the metros where the growth is slowest is still strong.” Headwinds do exist, of course. Chang noted that about 950,000 healthcare jobs were created in the last quarter but the sector is still experiencing a labor shortage. “When you look at total job creation in the last year, healthcare services was about 40%. It is a huge portion of the economy,” Chang said. Other headwinds confronting healthcare real estate are more general and are being experienced across the board. Concerns about the economy still exist even as the Fed is doing its best to engineer a soft landing. “There are a lot of challenges there and I don’t think it is going to get easier over the next year. It has been tough.” The forecast for 2025 is 2.1% growth, but there is a certain degree of uncertainty about the Trump Administration’s policies. The labor markets have been hard to predict. “September numbers came in high. October came in low. We expect the number that comes in Friday this week to come in high…that will be a makeup. Net net we are probably around 2 million jobs for the year. “ Going into 2025, we expect that it will be slower, Chang continued. In many ways, the economy is still recovering from the labor shortage of 2021 and 2022. “Inherently, we should have more jobs than unemployed people. It is not normal historically to have a labor shortage like this and we will continue to monitor that in the coming year. Chairman Powell is looking less [concerned] about inflation and more on the employment market.” For observers eager to know right now what the year holds, they will have to exercise some patience. Chang believes by June there is a 60% chance the federal funds rate will be around 4%. “The Federal Reserve will hold back and wait,” Chang said. “There will be a period of uncertainty and it will be March at the soonest before we see all of these pieces fitting together and how policies will be implemented and how severely they are implemented.” In the meanwhile, investors seeking refuge from these forces would do well to consider healthcare real estate. “Medical office is outperforming…that is where a lot of the demand is centered,” Chang said. “There is a lot of dry powder waiting to be deployed. The money is looking for a place to land. The healthcare sector is at the top of the list to put money and that will continue.”