United States | 2023
Research
Healthcare
Investor Survey and Trends Outlook
Report
highlights
Capital markets activity for
healthcare properties in H1
2022 far outpaced H1 2021,
but transactions slowed in H2
2022, especially for singleproperty sales, due to pricing
uncertainty stemming from
rising interest rates
Capitalization rates have risen
50bp and are likely to continue
to see upward pressure in
early 2023, but should stabilize
near the midpoint of the year
Medical Office Building (MOB)
fundamentals remain strong
with resilient occupancy and
steady rent and NOI growth
Shift to outpatient care opens
opportunities for more
investment in MOBs and
Ambulatory Surgery Centers
(ASCs)
2 | Healthcare | 2023 Investor Survey and Trends Outlook
Report highlights
2
Capital markets
3
Property markets
6
Market outlook
10
Investor survey results
11
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Capital markets
Rising transaction volume stalled by escalating
borrowing costs and economic uncertainty
Interest in healthcare real estate has grown, and transaction volumes reached an all-time high in 2022.
Medical Office Buildings (MOBs) continue to make up the largest portion of healthcare real estate transactions;
however, in recent years Ambulatory Surgical Center (ASCs) have comprised a larger portion of sales, with
ASCs making up 26.8% of sales in 2022.
Healthcare transaction volume
3%
2%
48%
2%
2%
Ambulatory Surgical Center
23%
27%
Hospital - General
2015
2022
Medical Office Building
24%
11%
58%
Medical Other (Condo,
Behavioral Health, LTAC, Other)
Rehabilitation Hospital
Source: JLL Research, Revista Pro
Medical Office transaction volume was bolstered by the merger of Healthcare Realty Trust (NYSE: HR) and
Healthcare Trust of America (NYSE: HTA). This transaction comprised approximately 400 MOBs valued at $9.4
billion, boosting transaction volume for Q3 2022 to $12.3 billion. However, quarterly transaction volume
excluding that public merger dropped sharply in Q3 and Q4 2022 as rising federal funds rates and concerns of
a recession caused pricing uncertainty.
Billions
Rolling four-quarter transaction volume
$30
Single Asset
$25
$10
$24.7
Entity
$19.6
$20
$15
Portfolio
$11.6
$11.9
2015
2016
$14.8
$13.3
$13.6
$15.5
$13.9
$9.2
$5
$0
2017
2018
2019
2020
2021
2022
H1 2022 H2 2022
Source: JLL Research, Real Capital Analytics
3 | Healthcare | 2023 Investor Survey and Trends Outlook
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Spreads between the 10-year U.S. Treasury and MOB cap rates have narrowed notably, dropping from 400500bp in 2019-2021 to just over 230bp in Q4 2022. Cap rates have been impacted by rising treasury rates and
rising costs of borrowing. In our investor survey 76% of respondents indicated that they expected cap rates to
rise in the next 12 months. Cap rates are still low compared to historical levels, despite rising 50bp heading
into January 2023.
12%
10%
8%
6%
4%
2%
0%
500
300
Spread (bps)
700
100
4Q2009
2Q2010
4Q2010
2Q2011
4Q2011
2Q2012
4Q2012
2Q2013
4Q2013
2Q2014
4Q2014
2Q2015
4Q2015
2Q2016
4Q2016
2Q2017
4Q2017
2Q2018
4Q2018
2Q2019
4Q2019
2Q2020
4Q2020
2Q2021
4Q2021
2Q2022
4Q2022
10-year Treasury & Cap Rate
Relationship between capitalization rates and the 10-year treasury
10-year Treasury
MOB Quarterly Spread
MOB Cap Rates
MOB Average Spread
Source: Real Capital Analytics, JLL Research
Rising interest rates were cited as the largest concern facing the MOB investment landscape in the coming
year. Many large domestic banks have temporarily slowed down lending activity and higher capital reserves
imposed by the Fed on large banks is hindering lending. Debt service coverage ratios have constrained
additional lending activity. Conventional secured debt rates in December 2022 averaged 5.7% on a 10-year
note, up 260bp since the prior year. Pre-pandemic, pre-stimulus rates of 3.5-4.5% could provide a guide for
late 2023.
Rental rate growth for MOBs is projected to be between 2-4% according to our survey. Strong rent growth for
medical office can temper the rise of cap rates. Currently the bid-ask spread is limiting transaction volume, as
sellers’ pricing expectations are adjusting to the higher interest-rate environment.
Commercial real estate debt cost by type
Interest rate
8%
6%
4%
2%
0%
'16
'17
'18
'19
'20
'21
'22
10-year Treasury
Agency
REIT Pfd Index
Unsecured REIT Debt
Conventional Secured
CMBS Index
Source: JLL Research, Green Street (as of December 2022) Representative of 10-year money
4 | Healthcare | 2023 Investor Survey and Trends Outlook
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REITs expanding in medical sector,
institutional ownership declines
Like in most real estate sectors, institutional investment in MOBs had declined in 2022. In 2022, institutional
buyers comprised 14.9% of transactions, compared with 26.3% in 2021 and 29.5% in 2020. REITs have
expanded ownership, with REITS now controlling 13% of the product in 2022, up 2% since 2019. While interest
in medical office has increased in the last decade, 63% of healthcare real estate is still owned by hospitals,
providers, or the government. Given the tight margins of the healthcare sector, capitalizing on growing interest
in real estate investment could enable providers or healthcare systems to use real estate to generate cash.
Mob ownership by type
(% of total square feet)
Buyer composition
0%
37% Investor
Owned
17%
20%
13%
40%
24%
10% 13%
18% 17%
18% 39% 26%
28%
5.8%
27%
12%
30% 26%
15%
29%
36% 12%
12% 21%
37%
52%
60%
11%
52%
39% 47% 44%
80%
Hospitals/Health Systems
Providers/Government/Other
Private Investors
REITs
100%
48% 52% 46%
12% 12% 11% 9% 10% 8%
6%
45% 42%
8%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Cross-Border
Private
Source: JLL Research, Revista
34%
Institutional
User/Other
REIT/Listed
Source: Real Capital Analytics
MOB transaction volume and pricing
expected to stabilize
MOB fundamentals continue to be healthy with strong occupancy and rent growth, making it an appealing
sector compared with traditional office. Strong NOI growth at 2.7% in Q3 2022, despite high expenses, and
acceptance of 3% escalations (up 100bp), make MOBs a resilient asset class in a cloudy economic climate.
5 | Healthcare | 2023 Investor Survey and Trends Outlook
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Property markets
Medical office fundamentals show resiliency
After dipping down to 91.3% in Q1 2020, medical office occupancy has continued to increase driven by strong
demand and slowing deliveries in 2021 and 2022 and stood at 92.3% in Q4 2022. MOB completions slowed
from 1.7 million s.f. delivered in 2019 to 1.2 million s.f. delivered in 2022. Occupancy for MOBs has proved
resilient, due to the in-person nature of most medical services. National MOB occupancy did not dip
significantly during the COVID recession and is 11.4% higher than traditional office space. Because of the high
cost to build out a medical office space and proximity to patients, medical office tenants tend to remain in the
same space for longer, providing stable occupancy.
25,000,000
20,000,000
15,000,000
10,000,000
5,000,000
0
92.5%
92.3%
92.0%
91.8%
91.5%
91.3%
91.0%
Completed SF (ttm)
Absorption SF (yoy)
Occupancy (%)
Square feet
Medical office occupancy ticks upwards as demand intensifies in a moderate construction environment
Occupancy Rate (ttm)
Source: Revista; Top 100 Markets
Driven by strong occupancy growth, medical office asking rent has been increasing 2.29% on average for the
last two years. This is in contrast to overall office market rents, which have grown 1.9% on average in the same
period. While traditional office is adjusting to new hybrid work expectations, in-person visits still account for
90% of all visits, with telehealth declining from a peak of 52% during the pandemic to 10% of all visits.
Absorption continues to be strong, and an aging U.S. population will continue to drive demand for healthcare
services as the 65+ population accounts for 36% of healthcare expenditures.
Rent NNN average
3.0%
YOY growth
$22.00
2.0%
$20.00
1.0%
$18.00
0.0%
YoY growth
$24.00
1Q2017
2Q2017
3Q2017
4Q2017
1Q2018
2Q2018
3Q2018
4Q2018
1Q2019
2Q2019
3Q2019
4Q2019
1Q2020
2Q2020
3Q2020
4Q2020
1Q2021
2Q2021
3Q2021
4Q2021
1Q2022
2Q2022
3Q2022
4Q2022
Average NNN rent
Medical office rent has been increasing 2% on average for the past two years
Source: Revista; Top 100 Markets
6 | Healthcare | 2023 Investor Survey and Trends Outlook
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Shift to outpatient care will drive continued
demand for Ambulatory Surgical Centers
Advances in technology, changes in reimbursement and consumer preference and convenience have shifted
sites of care from inpatient to outpatient. Surgeries that previously were inpatient only, such as hip
replacements, are now done in Ambulatory Surgical Centers (ASCs). Inpatient admissions have been declining
over the past five years while outpatient admissions are up significantly led by increasing volume for spine,
orthopedic and vascular care. From 2016-2021 the share of outpatient Medicare payments increased from
28.5% to 33.3%, with the greatest growth coming from surgery and dialysis. Because of this, hospital systems
are shifting their care model by developing or acquiring outpatient sites to not lose out on this revenue.
Outpatient sites dominate healthcare service delivery
U.S. outpatient visits vs. hospital admissions
Outpatient Visits
Inpatient Admissions
2400
125
2300
120
2200
115
2100
110
2000
105
1900
100
1800
95
1700
90
Outpatient Visits per 1,000 Population
Inpatient Admissions per 1,000 Population
Source: Kaiser Family Foundation, Advisory Board
7 | Healthcare | 2023 Investor Survey and Trends Outlook
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Rehabilitation growing segment to reduce
care costs
While most of the growth in services is happening
in outpatient sites, services in the rehabilitation
space show substantial growth in inpatient sites
Outpatient volume change 2021-2031
Orthopedics
Vascular
Physical Therapy
/Rehabilitation
30.6%
Top 5 care services
Spine
27.0%
26.9%
26.1%
Misc. Services
25.9%
Urology
7.2%
Pulmonology
5.9%
Cosmetic Procedures
5.0%
Gynecology
Obstetrics
-4.9%
-13.1%
Bottom 5 care services
While most growth in healthcare services is in
outpatient sites, rehabilitation volumes are
forecast to grow by 26% from 2021 to 2031. After
receiving acute care, patients may be discharged
to receive secondary care. The spectrum of
secondary care ranges from a Long-Term Acute
Care Hospital for a higher level of care, or at the
lowest level of care, follow up through home
health. In the middle of the post-acute care
spectrum is an Inpatient Rehabilitation Facility
(IRF) which provides patients with three hours of
intense rehabilitation services per day. These
facilities may be located in or adjacent to an
Acute Care Hospital but operate as a separate
unit, or they could be stand-alone facilities. To
receive reimbursement from Medicare, 60% of
patients at such hospitals must have one of 13
qualifying diagnoses such as stroke, spinal cord
injury, brain injury, etc. Currently there are over
2,500 IRF beds under construction, with the
largest numbers in the SunBelt region, following
the population growth, especially population
growth of the 65+ segment.
Inpatient volume change 2021-2031
IRF beds under construction
Rehabilitation (Acute Care)
Other Trauma
Ophthalmology
Top 5 care services
Neurosurgery
26.0%
General Medicine
-4.8%
Thoracic Surgery -9.0%
Obstetrics -12.4%
ENT -14.4%
Gynecology
Source: Revista
8 | Healthcare | 2023 Investor Survey and Trends Outlook
-39.2%
14.6%
12.9%
10.8%
Bottom 5 care services
Orthopedics
18.9%
Source: Advisory Board
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Behavioral health facilities seek to address
growing mental health awareness
The pandemic and prolonged isolation brought
more awareness and acceptance to mental health
discussions and exacerbated many pre-existing
mental health conditions and addictions. From 2013
to 2020, the use of outpatient mental health services
increased 32% . Over two-thirds of adolescents age
12 to 17 and 64% of adults age 18 or older perceived
that Covid-19 had a negative effect on their mental
health. Access to mental health resources during the
pandemic changed, pushing more services to
telehealth and causing delays in treatment, with 3 in
8 people 12 and over experiencing delays or
cancelations in appointments. Insurance coverage
Behavioral health projected patient growth
Estimated change in volume
30%
20%
10%
for behavioral health has expanded, according to a
survey by AHIP, the number of in-network behavioral
health providers increased an average of 48% from
2019-2022 among commercial health plans.
Additionally, the Consolidated Appropriations Act of
2023 continued telehealth coverage for Medicare
patients for behavioral health at least through 2024.
A growing number of in-person therapeutic options
are also available, including inpatient and partial
hospitalization. From 2020-2022, 42 behavioral
health facilities opened, adding 2,874 beds. An
additional 3,737 beds are under construction,
demonstrating growing investment in the segment .
Behavioral health expenditures by type of care
25.2%
18.4%
11.60%
6.50%
Outpatient
Spending
65%
Prescription
Drug Spending
23%
0%
-10%
-1.30%
5-year growth
-3.60%
10-year growth
Outpatient - Psychiatry
Inpatient - Psychiatry
Inpatient - substance use
Source: Advisory Board, Market Scenario Planner
9 | Healthcare | 2023 Investor Survey and Trends Outlook
Inpatient
spending
13%
Source: EBRI, Use of Health Care Services for Mental Health Disorders and
Spending Trends, September 8, 2022
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3-year change 2019-2022
Other
Medication-assisted
treatment providers
ABA Specialists
Psychiatric NPs
Licensed therapists
Psychologists
160%
140%
120%
100%
80%
60%
40%
20%
0%
Child or Adolescent
Psychiatrists
1,400
1,200
1,000
800
600
400
200
0
Psychiatrists
Providers per 100k covered
In-network behavioral health care providers
Source: AHIP, Health Insurance Providers Facilitate Broad Access to Mental Health Support, August 2022
In 2014, the Substance Abuse and Mental Health Services Administration (SAMHSA) projected
that in 2020, behavioral health spending would grow to be more than $280 billion. Due to the
impact of the pandemic, this number is likely higher.
10 | Healthcare | 2023 Investor Survey and Trends Outlook
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Labor challenges could put a damper on
development and health system performance
Average hourly earnings for healthcare workers are
rising as employers compete for workers – wages are
up 16.3% since January 2020. Rising wages will
challenge already tight hospital margins but could
be necessary to draw more workers into the field.
Until the labor challenges settle, new development
for healthcare real estate may continue to be
tempered, despite forecasts for increased demand
for services.
2500
$35
2000
$30
1500
$25
1000
$20
500
$15
0
$10
Healthcare and Social Assistance job openings
11 | Healthcare | 2023 Investor Survey and Trends Outlook
Average Hourly Wages
Job Openings (Thousands)
Behind all healthcare real estate are the nurses and
doctors and patient support staff that provide
quality care. The last three years have been
especially challenging for healthcare workers, and
one-in-five healthcare workers have quite since
February 2020. Even if demand is there for new
healthcare development and services, if workers are
not available, healthcare systems will not be able to
operate these at full capacity.
Healthcare and Social Assistance wages
© 2023 Jones Lang LaSalle IP, Inc. All rights reserved.
Market outlook
While healthcare real estate faces headwinds from tight margins and labor challenges, the tailwinds of
demographic shifts and the inelasticity of medical services make medical real estate an attractive
investment opportunity. In our survey, 66% of respondents viewed MOBs as the biggest opportunity in
healthcare real estate, followed by ASCs, highlighting the shift in opportunity to outpatient care vs.
inpatient facilities. The impacts of COVID-19 were vast and wide-ranging, impacting healthcare margins
and permanently affecting how the healthcare system operates and responds to crises. However, 30% of
respondents to our survey believe we have endured the worst and expect market valuations and
transaction activity to improve in the next 12 months.
12 | Healthcare | 2023 Investor Survey and Trends Outlook
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Investor survey results
The JLL Investor Survey focuses on transaction professionals who specialize in the healthcare space. The
sample set for this survey was 129 respondents, encompassing some of the most influential leaders in the
sector. The intention of this survey is to garner insights into current market sentiment from industry leaders
and to provide expectations for the year ahead.
13 | Healthcare | 2023 Investor Survey and Trends Outlook
© 2023 Jones Lang LaSalle IP, Inc. All rights reserved.
Investor
survey results
Capitalization rates by investment class
Respondents were asked to select the most appropriate capitalization rate range, applied to
year 1 stabilized net operating income, inclusive of market level management fees and
replacement reserves, for core/primary and non-core/secondary market locations, broken out
by asset class.
Core - Class A
Capitalization Rates (%)
4.5-4.9% 5.0-5.4% 5.5-5.9% 6.0-6.4% 6.5-6.9% 7.0-7.4% 7.5-7.9% 8.0-8.4% 8.5-9.9% +10.0%
Medical Office Building (MOB)
5%
23%
38%
26%
5%
4%
0%
0%
0%
0%
Ambulatory Surgical Center (ASC)
2%
14%
38%
29%
13%
4%
2%
0%
0%
0%
Acute Care Hospital
0%
11%
16%
8%
24%
26%
8%
8%
0%
0%
Long Term Acute Care Hospital (LTACH)
0%
6%
8%
6%
11%
25%
14%
8%
11%
11%
Inpatient Rehabilitation Facility (IRF)
0%
5%
13%
16%
24%
18%
16%
3%
0%
5%
Behavioral (Psychiatric/Eating Disorder)
3%
0%
3%
11%
22%
27%
19%
8%
5%
3%
Substance Use Treatment (Alc./Drugs)
0%
3%
3%
9%
6%
39%
18%
6%
12%
3%
Core - Class B
Capitalization Rates (%)
4.5-4.9% 5.0-5.4% 5.5-5.9% 6.0-6.4% 6.5-6.9% 7.0-7.4% 7.5-7.9% 8.0-8.4% 8.5-9.9% + 10.0%
Medical Office Building (MOB)
0%
3%
11%
36%
32%
15%
3%
1%
0%
0%
Ambulatory Surgical Center (ASC)
0%
0%
8%
35%
31%
20%
0%
6%
0%
0%
Acute Care Hospital
0%
0%
6%
11%
11%
17%
34%
6%
14%
0%
Long Term Acute Care Hospital (LTACH)
0%
0%
3%
6%
6%
18%
12%
21%
18%
15%
Inpatient Rehabilitation Facility (IRF)
0%
0%
3%
6%
15%
35%
15%
9%
9%
9%
Behavioral (Psychiatric/Eating Disorder)
0%
0%
0%
3%
6%
27%
24%
15%
15%
9%
Substance Use Treatment (Alc./Drugs)
0%
0%
0%
3%
0%
17%
30%
23%
13%
13%
Core - Class C
Capitalization Rates (%)
4.5-4.9% 5.0-5.4% 5.5-5.9% 6.0-6.4% 6.5-6.9% 7.0-7.4% 7.5-7.9% 8.0-8.4% 8.5-9.9% + 10.0%
Medical Office Building (MOB)
0%
0%
1%
7%
17%
30%
19%
10%
3%
12%
Ambulatory Surgical Center (ASC)
0%
0%
0%
4%
24%
26%
24%
13%
4%
4%
Acute Care Hospital
0%
0%
0%
3%
6%
12%
24%
27%
15%
12%
Long Term Acute Care Hospital (LTACH)
0%
0%
0%
3%
6%
3%
15%
15%
30%
27%
Inpatient Rehabilitation Facility (IRF)
0%
0%
0%
3%
6%
6%
22%
22%
16%
25%
Behavioral (Psychiatric/Eating Disorder)
0%
0%
0%
0%
3%
0%
22%
22%
19%
34%
Substance Use Treatment (Alc./Drugs)
0%
0%
0%
0%
3%
0%
10%
27%
27%
33%
Non-Core - Class A
Capitalization Rates (%)
4.5-4.9% 5.0-5.4% 5.5-5.9% 6.0-6.4% 6.5-6.9% 7.0-7.4% 7.5-7.9% 8.0-8.4% 8.5-9.9% + 10.0%
Medical Office Building (MOB)
2%
5%
27%
40%
14%
13%
0%
0%
0%
0%
Ambulatory Surgical Center (ASC)
0%
0%
24%
45%
17%
7%
2%
2%
2%
0%
Acute Care Hospital
0%
0%
15%
7%
19%
30%
4%
19%
7%
0%
Long Term Acute Care Hospital (LTACH)
0%
0%
13%
4%
13%
17%
17%
17%
8%
13%
Inpatient Rehabilitation Facility (IRF)
0%
0%
7%
14%
24%
24%
7%
17%
7%
0%
Behavioral (Psychiatric/Eating Disorder)
0%
0%
4%
0%
16%
32%
16%
24%
4%
4%
Substance Use Treatment (Alc./Drugs)
0%
0%
4%
0%
9%
26%
22%
22%
9%
9%
Non-Core - Class B
Capitalization Rates (%)
4.5-4.9% 5.0-5.4% 5.5-5.9% 6.0-6.4% 6.5-6.9% 7.0-7.4% 7.5-7.9% 8.0-8.4% 8.5-9.9% + 10.0%
Medical Office Building (MOB)
0%
0%
5%
16%
34%
23%
10%
10%
2%
0%
Ambulatory Surgical Center (ASC)
0%
0%
2%
17%
32%
24%
12%
5%
5%
2%
Acute Care Hospital
0%
0%
0%
12%
4%
15%
27%
12%
19%
12%
Long Term Acute Care Hospital (LTACH)
0%
0%
0%
13%
0%
13%
26%
9%
17%
22%
Inpatient Rehabilitation Facility (IRF)
0%
0%
0%
7%
11%
19%
30%
7%
19%
7%
Behavioral (Psychiatric/Eating Disorder)
0%
0%
0%
4%
0%
8%
38%
17%
21%
13%
Substance Use Treatment (Alc./Drugs)
0%
0%
0%
5%
0%
0%
27%
27%
18%
23%
Non-Core - Class C
Capitalization Rates (%)
4.5-4.9% 5.0-5.4% 5.5-5.9% 6.0-6.4% 6.5-6.9% 7.0-7.4% 7.5-7.9% 8.0-8.4% 8.5-9.9% + 10.0%
Medical Office Building (MOB)
0%
0%
0%
4%
15%
20%
22%
18%
7%
15%
Ambulatory Surgical Center (ASC)
0%
0%
0%
3%
19%
19%
17%
19%
8%
14%
Acute Care Hospital
0%
0%
0%
0%
12%
4%
12%
20%
20%
32%
Long Term Acute Care Hospital (LTACH)
0%
0%
0%
0%
13%
0%
9%
17%
22%
39%
Inpatient Rehabilitation Facility (IRF)
0%
0%
0%
0%
4%
16%
8%
28%
20%
24%
Behavioral (Psychiatric/Eating Disorder)
0%
0%
0%
0%
4%
0%
9%
22%
30%
35%
Substance Use Treatment (Alc./Drugs)
0%
0%
0%
0%
5%
0%
0%
14%
41%
41%
14 | Healthcare | 2023 Investor Survey and Trends Outlook
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Cap rate spreads
Respondents were asked about the typical spread they are underwriting between the going-in and
terminal/reversion capitalization rates on a 10-year hold.
All Markets
Going-in / Terminal rate spread
Medical Office Building (MOB)
Ambulatory Surgical Center (ASC)
Acute Care Hospital
Long Term Acute Care Hospital (LTACH)
Inpatient Rehabilitation Facility (IRF)
Behavioral (Psychiatric/Eating Disorder)
Substance Use Treatment (Alc./Drugs)
No
Spread
8%
7%
0%
0%
0%
0%
6%
<25 bps
4%
7%
5%
6%
5%
6%
0%
25 bps
20%
14%
16%
11%
10%
13%
13%
50 bps
47%
39%
26%
33%
50%
38%
38%
75 bps
10%
14%
16%
17%
15%
6%
6%
100 bps 125 bps 150 bps >150bps
6%
4%
2%
0%
7%
7%
0%
4%
32%
0%
0%
5%
28%
0%
0%
6%
15%
0%
0%
5%
25%
6%
0%
6%
25%
6%
0%
6%
Respondents were asked about the typical spread they are underwriting between the terminal/reversion and
discount rates on a 10-year hold.
All Markets
Terminal / Discount rate spread
Medical Office Building (MOB)
Ambulatory Surgical Center (ASC)
Acute Care Hospital
Long Term Acute Care Hospital (LTACH)
Inpatient Rehabilitation Facility (IRF)
Behavioral (Psychiatric/Eating Disorder)
Substance Use Treatment (Alc./Drugs)
No
Spread
8%
16%
17%
20%
15%
18%
10%
15 | Healthcare | 2023 Investor Survey and Trends Outlook
<25 bps
0%
5%
8%
0%
8%
9%
10%
25 bps
11%
11%
8%
10%
8%
9%
10%
50 bps
33%
16%
0%
0%
0%
0%
0%
75 bps
17%
21%
0%
0%
0%
0%
0%
100 bps 125 bps 150 bps >150bps
19%
0%
6%
6%
26%
0%
0%
5%
50%
8%
0%
8%
50%
10%
0%
10%
38%
15%
0%
15%
45%
0%
9%
9%
50%
0%
10%
10%
© 2023 Jones Lang LaSalle IP, Inc. All rights reserved.
Composition of respondents
The largest category of survey
respondents was private capital
providers at 33%. Developers and
institutional investment managers
represented the next level of
respondents at 23% and 19% of
respondents, respectively.
Measurement of return
Respondents were asked to
indicate the type of investment
return they rely on the most.
Leveraged IRR was the most
popular measure of return, with
40% of respondents, while
Leveraged cash-on-cash return
was the second-most used with
21% of respondents.
Level of financing
Respondents indicated the typical
level of financing for an
investment. A vast majority of
respondents, 73%, indicated
financing typically falls between
55-70% LTV, with 38% indicating
financing at 55-64% LTV and 35%
between 65-70% LTV. A
substantial minority, 20%,
indicated financing typically is less
than 55% LTV.
100%
100%
100%
7%
3%
5%
90%
5%
2%
90%
15%
80%
80%
23%
70%
70%
21%
19%
50%
40%
30%
33%
20%
50%
16%
11%
0%
70%
40%
30%
30%
40%
10%
0%
0%
Q1 2023
Investment Sales (Broker)
Q1 2023
Other
Price Per Square Foot
Lender
Developer
Institutional Investment
Manager
Private Capital
REIT
16 | Healthcare | 2023 Investor Survey and Trends Outlook
All Cash IRR
Leveraged Cash-OnCash Return
38%
20%
10%
Other
35%
50%
40%
20%
10%
80%
60%
60%
60%
90%
7%
20%
Q1 2023
>70%
65% - 70%
LTV
55% - 64%
LTV
< 55% LTV
Going-In Cap Rate
Leveraged IRR
© 2023 Jones Lang LaSalle IP, Inc. All rights reserved.
Financing terms
Respondents indicated their
priorities for financing terms by
highlighting the most important
aspect when choosing a loan or
lender. Non-recourse debt was
indicated as the most important,
with 44% of respondents selecting
this choice, followed by LTV/LTC
with 25% and Availability of
Interest Only with 18% of
respondents.
Outlook for capitalization rates
Investor sentiment for 2023
indicates 76% of respondents
anticipate an increase in
capitalization rates over the next
12 months, while only 22%
anticipate no change and 2%
anticipate a decrease. Rising
Federal Funds rates and
borrowing costs continue to
weigh on cap rates.
100%
100%
100%
90%
90%
3%
4%
90%
80%
18%
80%
22%
2%
Opportunity for investment
Medical Office Buildings (MOB)
were seen as the greatest
opportunity for investment, with
66% of respondents. Ambulatory
Surgical Centers were indicated as
the greatest investment
opportunity by 20% of
respondents, followed by
Behavioral (Psychiatric/Eating
Disorder) with 12%.
80%
70%
70%
60%
60%
50%
50%
40%
40%
40%
30%
30%
30%
20%
20%
20%
6%
70%
60%
50%
10%
44%
25%
10%
0%
0%
Q1 2023
Opportunity for Future
Funding
76%
Q1 2023
No change
Pre-Payment Flexibility
Decrease
Availability of Interest Only
Increase
Floating vs Fixed
Non-Recourse
LTV/LTC
17 | Healthcare | 2023 Investor Survey and Trends Outlook
12%
2%
20%
66%
10%
0%
Q1 2023
Substance Use Treatment
(Alc./Drugs)
Behavioral (Psychiatric/Eating
Disorder)
Inpatient Rehabilitation Facility
(IRF)
Long Term Acute Care Hospital
(LTACH)
Acute Care Hospital
Ambulatory Surgical Center
(ASC)
Medical Office Buildings (MOB)
© 2023 Jones Lang LaSalle IP, Inc. All rights reserved.
Lease rates
Almost half, 47%, of respondents
indicated that lease rates would
grow between 2.0-2.9% annually,
with 33% indicating slightly faster
growth at 3-4%.
100%
90%
80%
70%
8%
33%
0%
90%
12%
80%
24%
50%
46%
40%
30%
20%
10%
3%
60%
50%
30%
100%
70%
60%
40%
Marketing time
Respondents were asked to indicate
typical marketing time for healthcare
assets, defined as the number of months
between the date a property is listed
through the date of closing. A majority of
respondents, 60%, indicated marketing
time was between 3-5 months, followed
by 24% of respondents indicating a 6–8month marketing time.
60%
20%
9%
4%
10%
Q1 2023
0%
>4.0%
3.0-4.0%
2.0-2.9%
1.0-1.9%
<1%
18 | Healthcare | 2023 Investor Survey and Trends Outlook
1%
Q1 2023
>12 months
9-12 months
6-8 months
3-5 months
<3 months
© 2023 Jones Lang LaSalle IP, Inc. All rights reserved.
Negative impacts
Market participants were asked to identify their top
concern about market changes that could negatively
impact the healthcare market over the next twelve
months. The majority of respondents (66%) cited
interest rates and capital markets, with development
costs being the second-most indicated concern with
13% of respondents.
100%
9%
3%
8%
3%
90%
80%
70%
100%
60%
50%
40%
90%
66%
70%
27%
50%
20%
0%
22%
80%
60%
30%
10%
Covid-19 impacts
Market participants were asked to describe the state
of the healthcare market in relation to the impact of
COVID-19. No participants ranked COVID-19 as their
top negative impact in the prior question, and 30%
of respondents replied that “We have endured the
worst and expect market valuations and transaction
activity to improve over the next 12 months.” This
was closely followed by 27% of respondents
indicating, “We’re expecting to see a decline in
property valuations and an increase in loan
delinquencies over the next 12 months.” An equal
number, 22%, of respondents selected “None of the
above” and “Still too early to tell and taking it one
day at a time”, providing a mixed picture on the
impact of COVID-19 on healthcare capital markets.
40%
13%
Q1 2023
Continued disruption of business operations due to
COVID-19
Availability of workforce
Regulatory environment
Negative changes in the economic environment (such
as declining home values and unemployment)
Competition of capital placement
Capital markets (interest rates)
Construction activity (new supply)
30%
30%
20%
10%
22%
0%
Q1 2023
Still too early to tell and taking it one day at
a time.
We're expecting to see a decline in property
valuations and an increase in loan
delinquencies over the next 12 months.
We have endured the worst and expect
market valuations and transaction activity to
improve over the next 12 months.
None of the above
Development cost
19 | Healthcare | 2023 Investor Survey and Trends Outlook
© 2023 Jones Lang LaSalle IP, Inc. All rights reserved.
Lease terms
Market participants were asked to
identify the minimum lease term
they would consider for a saleleaseback. A strong majority of
participants (73%) indicated 10-14
years was the minimum term they
would consider, followed by 5-9
years with 20% of respondents.
100%
3%
Yield on cost
Market participants were asked to
identify the minimum yield on
cost they would consider for a
healthcare development meeting
their highest standards. An equal
number of respondents, 34%
indicated the 6-6.9% range and
the 7-7.9% range, with 14% of
respondents indicating a range
of 5-5.9%.
100%
90%
90%
80%
80%
70%
70%
60%
73%
60%
50%
50%
40%
40%
30%
30%
20%
10%
0%
20%
4%
Q1 2023
3%
6%
9%
34%
10-14 years
5-9 years
<5 years
19%
80%
70%
34%
14%
Q1 2023
>10.00%
9.00-9.99%
17%
60%
50%
0%
15-19 years
100%
90%
20%
10%
Pre-leasing
Market participating were asked
about the minimum pre-leased
threshold that they (or their
lender) would consider for a
medical office development
meeting their highest standards.
The largest percentage of
respondents (37%) indicated a
pre-leasing threshold of 50-59%,
while 20% of respondents
selected 60-69%, followed closely
by a threshold over 80% indicated
by 19% of respondents. A high
pre-leasing standard is expected
in this capital-constrained
environment.
20%
40%
30%
20%
37%
10%
0%
7%
8.00-8.99%
Q1 2023
7.00-7.99%
>80%
6.00-6.99%
70-79%
5.00-5.99%
60-69%
50-59%
<50%
20 | Healthcare | 2023 Investor Survey and Trends Outlook
© 2023 Jones Lang LaSalle IP, Inc. All rights reserved.
Investment class and locational descriptions
Investment class
Class A: Excellent quality assets located in desirable
market locations, primarily core markets, but can be
in non-core markets. Construction is of excellent
quality, with building finishes that are high-end or
superior to the market with top quality building
systems including upgraded elevators, HVAC and
lobby and enriched amenities. Capture a greater
than proportionate share of the market with
occupancy levels and rent growth that outperforms
the market. Properties are often located on or near a
healthcare campus with state-of-the-art space and
equipment.
Market location classifications
Core (Primary): Market locations are consistent
with the Revista top 50 MSAs, generally more
densely populated, with higher barriers to entry.
Demographic growth and the economic base
outperform national and regional averages.
Class B: Good to average quality assets located in
core and non-core market locations. Building
finishes, technology, and amenities are considered
adequate or average to the market and becoming
dated. Locations are average to good but may be
located on a healthcare campus. These properties
capture their proportionate share of the market with
average occupancy and rent levels consistent with
the market.
On-Campus: Located on or immediately adjacent to
a healthcare campus. Typically, withing short
walking distance to a hospital.
Non-Core (Secondary): Market locations that are
typically outside the Revista top 50 MSAs, or the
surrounding suburbs, generally less populated areas
with a thin target population base and low barriers
to entry. The economic base is similar-to or inferiorto national averages.
Off-Campus: Located further away from a
healthcare campus. Not within walking distance to
a hospital.
Class C: Average to fair quality assets located in
non-core locations. Construction is typically older
and may be non-purpose built. Investment Class C
properties contain amenities and finishes that are
inferior to the market, may contain deferred
maintenance or require other cosmetic
improvements to maintain competitiveness. Rent
and occupancy levels typically fall within the bottom
30% of assets.
21 | Healthcare | 2023 Investor Survey and Trends Outlook
© 2023 Jones Lang LaSalle IP, Inc. All rights reserved.
Want more information?
Valuation Advisory
Research
Erik Hill, MAI, CCIM, MRICS
Erik.Hill@jll.com
National Head of Healthcare and Life Science
US Valuation Advisory
Kari Beets
Kari.Beets@jll.com
Senior Manager, Research Insight and Advisory
Healthcare and Seniors Housing
Brian L. Chandler, MAI, CRE, FRICS
Brian.Chandler@jll.com
National Practice Co-Lead, Seniors Housing
US Valuation Advisory
Maddie Holmes
Maddie.Holmes@jll.com
Senior Analyst, Research Insight and Advisory
Healthcare and Seniors Housing
Bryan J. Lockard, MRICS
Bryan.Lockard@jll.com
National Practice Co-Lead, Seniors Housing
US Valuation Advisory
Amber Schiada
Amber.Schiada@jll.com
Senior Director
Head of Americas Industry Research
jll.com/value
Click here to access other market outlook reports
along with other JLL Research publications.
Lauro Ferroni
Lauro.Ferroni@jll.com
Senior Director
Capital Markets Research
About JLL
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