Investor Interest in Behavioral Health Real Estate Continues to Rise as COVID Sparks More Demand

The behavioral health industry is an increasingly attractive place for health care and life science commercial real estate investment, in part, because of “dramatically improved” payment from Medicaid and Medicare.

Thirty-eight percent of survey respondents said that behavioral health facilities fit into their investment criteria for 2022, according to a report by Dallas-based commercial real estate development services and investment firm CBRE Group Inc. (NYSE: CBRE).

That’s a 7% increase from 2021. Overall, behavioral health is the third most common health care-related commercial real estate subtype to fit into the survey respondents’ investment criteria. No. 1 was medical office buildings at 99% and No. 2 was ambulatory surgery centers at 88%, the report states.


Respondents also said that medical office buildings and behavioral health centers would be the second-highest in demand for investors in 2022.

“The repercussions from COVID-19 have displayed extraordinary influence on behavioral health services, sparking real estate demand in the area,” the report states.

The survey was distributed to 500 leading health care real estate investment trusts (REITs), institutional and private capital investors, and developers. The survey reflects 104 responses, the report states.


Respondents identified a potential perceived mismatch between the demand for and the supply of behavioral health real estate assets in 2022 compared to 2021. About 63% of respondents identified a higher demand for assets with 28% assessing the demand as the same with the final 9% saying it was lower.

Assessing the behavioral health real estate supply, 42% of the respondents said the supply was higher in 2022 with 51% saying it was the same and 7% saying it was lower.

Behavioral Health Business has previously reported that health care REITs, especially those that have been buffeted by the pandemic through their exposure to senior care and housing facilities, are attracted to behavioral health for their higher yields and relative ease of facility conversion.

However, the high fragmentation of the industry and relative immaturity of the behavioral health industry creates obstacles for REITs to surmount as they approach the space.

As the CBRE report notes and as other BHB reporting has found, health care investment generally is considered a safe investment, sometimes referred to as recession-proof. Behavioral health real estate specifically has been seen as pandemic-proof in light of the disruptions foisted on investors by COVID-19.

“While not directly reported in the survey, our team has observed that behavioral health has become attractive to investors due to the more attractive yields attained with higher going-in cap rates compared to other medical office subtypes,” the report states. “Over the years, the reimbursement rate for behavioral health services has dramatically improved with Medicare and Medicaid. This has greatly influenced a drive for healthier behavioral health tenants.”

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