Telehealth and the future of healthcare real estate

The awareness and utilization of telehealth accelerated throughout the COVID-19 pandemic as patients opted to interact with healthcare providers from the safety of their homes rather than in what was often perceived as ‘virus-ridden’ healthcare facilities. As a result of its widespread use and acceptance, telehealth will be a prominent fixture in the delivery of health care going forward. During the early stages of the pandemic, Teladoc, a telemedicine and virtual healthcare company, reported utilization stabilizing at a level 40% higher than before COVID. Additionally, Teladoc recently completed its $18.5 billion merger with Livongo, a digital healthcare company specializing in chronic conditions. Other companies entering the telehealth space include CVS Health, Walgreens and OneMedical. Overall, telehealth visits’ share of total visits remains well above pre-COVID levels (Figure 1).

In our view, telehealth will have the greatest disruptive impact on the lower-acuity segment of the medical office market as accelerated adoption has the ability to replace the majority of in-person visits for lower-acuity services. Medical offices oriented towards higher-acuity specialties are positioned to outperform the broader medical office market. Higher-acuity medical services tend to require a patient to be on-site for care, such as hip or shoulder replacements and chemotherapy.

Higher-acuity medical offices have historically boasted the strongest rent growth in the medical office market and, in our view, are the most defensive against the increased trend of telehealth going forward. In fact, telehealth usage across higher-acuity specialties remains very low while lower-acuity specialties remain the highest (Figure 2). Additionally, early during the COVID-19 pandemic, higher-acuity specialties’ operations were least impacted, according to Revista’s Landlord Observation of Tenant Impacts Survey. The lower-acuity and less needs-driven specialties were more impacted and had to suspend or severely limit operations.

Telehealth’s impact will not be limited to just medical office buildings. It will also affect senior living. The next generation of senior living facilities that foster and cater to technology’s accelerated role in the delivery of health care are best positioned for future outperformance. As a result of the pandemic, existing and future senior living residents have been forced to adapt to the new delivery of health care via telehealth. In particular, as baby boomers age into the senior living resident age cohort, they will expect and desire state-of-the-art facilities that focus on technology and the rapidly evolving delivery of health care. Senior living facilities that have designated space for on-site telehealth visits with trained staff are more likely to attract potential residents than obsolete facilities that do not.

The COVID-19 pandemic has undeniably accelerated technology’s role in the delivery of health care. We believe that investment opportunities in the highly specialized medical office segment and state-of-the-art senior living segment are best positioned for future outperformance in tomorrow’s world.