As the COVID-19 pandemic recedes, it has left a clear mark on the behavioral and mental health real estate industry. ColliersGlobal commercial real estate services firm, Inc. has found that people are seeking specialized mental health help and treatment during these uncertain times. As a result, investment interest in these specialized facilities has skyrocketed, with investors acquiring provider clinics and real estate.
Behavioral health issues surge, increasing demand for facilities
Experts say mental health reports were low during the early stages of the pandemic, but a World Health Organization report found that the global prevalence of anxiety and depression increased by 25% in 2020 alone. Isolation and remote work have further hindered access to care, forcing health care providers to develop new and additional ways to care for patients. But the increased demand has posed multiple challenges, according to the report. Shawn JanusColliers national director of healthcare services.
“The demand for behavioral health services has increased exponentially,” Janus said. “The surge in demand has led providers to look to expand services but they are facing workforce, financial and operational challenges.”
Marianne Skorupski“The diverse and specialized needs of behavioral health practices often require different types of facilities based on the care provided,” adds Colliers’ national office research director, . “But establishing and maintaining these facilities can be difficult due to factors such as the physical structure of the property and relationships with local governments and neighbors. Additionally, some investors face a learning curve as they find that patient health insurance reimbursement structures are complex and uncertain, which can impact their ability to fund services, support the facility and drive revenue.”
Aging infrastructure impedes development
While investor interest in expanding behavioral health facilities has surged, some existing facilities are decades old: Of the more than 770 behavioral health facilities in the lower 48 states, only 6.8 percent were built since 1970. According to Janus, investors are considering innovative approaches, such as retrofitting other building types or evaluating the feasibility of new freestanding behavioral health facilities.
Investors and developers are also evaluating partnership structures and telehealth opportunities, but virtual options are not available for all behavioral health services, Janus noted, and he sees the sudden increase in demand for behavioral health services garnering legislative attention and paving the way for potential positive regulatory reform.
Demand and supply imbalance creates opportunity
Skorupski sees a bright future, saying the shortage of activity facilities will only encourage real estate investors to pour capital into the space, further stimulating construction in the sector.
Investment in this type of property has increased by $3 billion over the past decade, with $1.3 billion in transactions in 2021, accounting for 41% of the total. According to data from MSCI Real Capital Analytics, medical property sales have totaled more than $310.8 billion since 2020, with more than $18.3 billion invested in medical buildings through May 2024, the second-highest amount of sales for the same period since 2020.
“As more behavioral health projects are implemented, investors and lenders will have more confidence in underwriting and benchmarks,” Skorupski predicts.
