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Health Service Real Estate May Be Recession Proof

With the increase in demand for health care services due to aging baby boomers, investors see great potential for medical office buildings - a niche that according to some may be recession proof, Herald reports.

"Doctors are paid by the government in Canada, so they're pretty secure tenants," says Huy Lam, who specializes in health care real estate and works as a broker for Colliers International.

According to Lam, there has been a consistent and increasing demand for medical office buildings in Canada in recent years, and this trend is not going to dwindle any time soon as the number of seniors in the country continues to increase.

Because of fragmented ownership - pension funds, real estate investment trusts, and private wealthy investors - quantifying the amount of money getting in becomes a difficult task.

However, by this year alone, Collier foresees $211 million worth of sales in medical office buildings in Ontario. That's almost double the amount based on the data compiled by commercial real estate brokerage in 2011 which only accounted $126 million.

"We do think that there's going to be growing demand for health-care real estate, and we believe that pricing is relatively attractive right now for certain health-care assets," says Peter Ballon, head of Canada Pension Plan Investment Board in the Americas. The agency is said to be teaming up with a U.S. real estate investment trust for California based medical office buildings amounting to a total of $449 million.

Investors are staking on medical office buildings being that they are less prone to be affected by economic turmoil as well as threats by other forces like e-commerce.

"Demand for health care is not driven by how the economy is doing," says Chris Potter, a partner at PwC Canada.

Now, the challenge for investors is the availability of supply. With public hospitals being publicly owned, investors are left with purchasing buildings for doctors' offices, laboratories, pharmacies, and physiotherapy clinics.

"It's very expensive to build them and generally you need more land to build medical buildings because of the parking requirements," Lam said. This could be the reason behind the sluggish construction of such buildings in Canada recently.


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