As investors shift away from traditional commercial real estate products like office, multifamily and retail, healthcare has emerged as a strong sector to consider. But investors are cautioned not to dive into this growing asset class blindly. As with any real estate product, healthcare real estate has its nuances that will impact an investment’s ultimate viability.

The most common type of healthcare property is medical office space. This is a highly sought after asset by investors. Physicians typically sign mid- to long-term leases, meaning that tenants are anchored in a particular location. The resulting stability in the marketplace makes these spaces attractive to investors seeking stable income and a diversification from more traditional CRE sectors.

Another healthcare real estate category that is in high demand is freestanding medical facilities and ambulatory surgery centers. These properties are often located in busy shopping plazas or large malls, which offer a lot of foot traffic for potential patients. Several REITs specialize in these assets, and one of the most successful is CareTrust, which has delivered solid returns for its shareholders over the past one-, three- and five-year periods.

The senior population is growing rapidly, and as it does, the need for skilled nursing facilities should increase. However, governmental regulations often prevent these facilities from being overbuilt. Many states require hospitals to obtain a regulatory approval that shows sufficient demand for new facilities before they can expand, and some municipalities have strict zoning rules that restrict the locations of these types of properties. healthcare real estate