Healthy Outlook for Health Care Properties1/31/2017
Despite Uncertainty Over Drive to Repeal Obamacare, Investors Banking on Demographics to Maintain Healthy Outlook for Health-Care Properties
Health-care REIT stocks definitely caught a cold in the wake of the unexpected November election results. Even as the Dow Jones Industrial Average topped 20,000 for the first time, the health care REIT sector has declined 2.7% over the past three months, with shares of leading companies like HCP, Inc. (NYSE:HCP) tumbling over 10% in the run up and weeks following the election.
To be sure, many market analysts acknowledge health-care markets face many unknowns, chiefly regarding any replacement for the Affordable Care Act (ACA) targeted for repeal by Republicans, and the effects of changes in government reimbursement of medical and seniors housing costs to providers.
According to a new report by the Congressional Budget Office, repealing portions of the ACA, also known as Obamacare, would cause 18 million people to lose their insurance during the first year of a new plan, and lead to 32 million more people becoming uninsured by 2026. Repeal would also lead to a doubling in the prices of premiums paid by those who remain covered in the individual insurance market, according to the CBO.
Not surprisingly, many health-care providers are expected to delay making major commitments until more information about impending changes to the Act becomes available, according to CBRE Group, Inc.'s 2017 Medical Office Building sector outlook.
While any repeal of the ACA without a replacement plan in place could bring a steep drop in health-care visits and demand, CBRE Americas Head of Research Spencer G. Levy, chief economist Jeffrey Havsy and senior managing economist Timothy Savage recently authored a report saying the long-term prospects of heath-care real estate will be affected more by the tens of millions of retiring baby boomers and ongoing health-care industry consolidation and technological advances, than by the vagaries of government health care policy.
"We are certainly in the midst of intense change and corresponding uncertainty in the health care world, particularly when it comes to government reform," added Matthew Stevens, senior director with The Advisory Board, in a recent conversation with Colliers International Healthcare Services National Director Mary Beth Kuzmanovich. “The true keys to success are less dependent on political particularities. Providing accessible, reliable and affordable health care will remain top priorities," Stevens said.
CBRE's analysts also said a full repeal is highly improbable due to the negative impact of millions of Americans immediately losing their insurance and the potential for higher federal deficit spending if the tax revenue underpinning the law is not replaced. But they believe any short-term disruption will be trumped by major population trends.
"Over the long term, the wave of aging baby boomers will drive demand for health care services, irrespective of any regulatory changes," the report said.
Outlook for MOBs Remains Solid
As of the third quarter of 2016, medical-office buildings (MOBs) continued to outperform the broader U.S. office market, achieving over 50% higher demand growth, according to CoStar Portfolio Strategy. The average U.S. medical office vacancy rate of roughly 8% is well about the overall office vacancy rate in all but a few high-construction metros such as San Francisco and Nashville, according to CoStar data.
Source - CoStar Group