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Will Life Science, MOBs Aid Healthcare REIT Recovery in 2021?

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Healthcare REITs was one of the worst-hit sectors due to the coronavirus pandemic, mainly due to seniors housing woes. While the pandemic impacted practically all healthcare property types in varying degrees, the seniors housing real estate market has been most affected. (Read more: Is Recovery on the Horizon for Seniors Housing in 2021?).

With senior housing facilities continuing to bear the brunt of declining occupancy and margins, medical office buildings (MOBs) and life science asset classes of real estate have emerged more resilient, and are grabbing the attention of investors.    

In fact, life-science assets, in particular, have grabbed the limelight amid the increasing need for effective diagnostics, therapies and vaccines to fight the coronavirus pandemic. Moreover, as patients continue to seek medical care, particularly elective medical care and procedures, MOBs are also expected to witness decent demand and are likely to support healthcare REIT performance in 2021.

Let’s take a look at how life-science centers and MOBs are poised for 2021.

Life-Science Centers

It is no secret that COVID-19 has accelerated growth and strengthened the fundamentals of the life sciences real estate market. Specifically, R&D funding dedicated to COVID-19 has increased the demand for labs, given the need for more biomanufacturing space for domestic manufacture and production of solutions and innovations that can exclusively be carried out in labs.  

These underlying demand drivers are likely to accelerate developments in leading life-science clusters like Boston-Cambridge and the San Francisco Bay Area as well as lab conversions from other property types in other markets next year. 

Hence, given higher venture capital funding and hiring in the life sciences industry, this commercial real estate segment should not only be resilient but also see robust performance next year as well. Moreover, even after vaccine or therapeutics to address COVID-19 are available, a pullback in demand for life-science properties is unlikely, given the continued need for other life-saving drugs, treatments, and healthcare devices. This positions companies like Alexandria Real Estate Equities, Inc. (ARE - Free Report) and Healthpeak Properties, Inc. (PEAK - Free Report) well, with their significant life-science exposure.

MOBs

Operating performance of MOBs faltered moderately in mid-2020 due to restrictions on physician practices and non-essential surgeries. Since the relaxations were relaxed, MOBs have bounced back, thanks to recovery in patient volumes. Moreover, landlords are witnessing record-high leasing and tenant retention. This is expected to continue next year as well and aid performance of MOB-focused REITs like Physicians Realty Trust (DOC - Free Report) and Healthcare Realty Trust Incorporated (HR - Free Report) .

Markedly, increasing life expectancy of the U.S. population and higher demand for healthcare services in lower-cost outpatient settings also support a favorable outlook for MOBs in 2021.

Nonetheless, it is worth mentioning that the pandemic and resultant social distancing protocols have increased the usage of telemedicine. This may affect the long-term demand for MOB assets. Moreover, patient demand for convenience and flexibility indicate that telehealth including eConsults, remote patient monitoring and virtual visits are here to stay even after the pandemic.

Nevertheless, the probable decrease in demand for MOB space arising from preferential shift toward tele-health will likely be offset by the rising need for more space for provision of social distancing protocols and expansion of outpatient services.

All four companies mentioned in this article carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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