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Healthcare Well Positioned to Hedge Against Downturns U.S. healthcare employment is officially the strongest job generator in the economy.

The Economist

Employment growth is one of the key indicators of the economic cycle in the U.S. It drops off just ahead of a recession, falls to negative in the trough and bounces back in recovery. Most industries follow this pattern, except for one – healthcare.

U.S. healthcare employment has grown continuously since 1990. From 7% of the total employment in 1990, it has grown to contribute 16 million jobs, or 11% of the U.S. job market, officially the strongest job generator in the economy.

More interestingly, in the last three downturns, healthcare employment growth has actually accelerated as the economy has slowed (Figure 1).  This is not a deliberate act of economic policy. It reflects the fact that public and private healthcare improvements can be made when the public finances are good and these initiatives have a lagged impact. However, healthcare in recent times has played a significant role stabilizing the economy through difficult times.  

Will healthcare employment surge during the next recession? We think there is a reasonable chance that it will, although its depends a little on how the current debate on the public finances plays out. Nevertheless, unshakable fundamentals including the aging U.S. population and rapidly advancing medical technology will continue to drive the healthcare economy forward. By 2022, over one third of the U.S. population will be older than 55. The healthcare and social assistance sector will add the largest number of jobs in the run-up to that date, according to the Bureau of Labor Statistics.

What does it mean for commercial real estate investing?

Like healthcare employment, the net absorption of medical office buildings (MOB) never goes negative, or at least, it has not done so for the period in which we have data. Figure 2 shows that the net absorption of medical offices correlates quite closely with healthcare employment growth. MOB rent growth is more volatile than net absorption with some periods of rental falls but the relatively modest rent growth enabled healthcare businesses to nurture growth and create more jobs. Most importantly, from an investment perspective, positive net absorption points to stable and consistent cash flows, including during recessions!    

The Economist

About Richard Barkham

Richard Barkham

Richard is a specialist in macro and real estate economics. He joined CBRE in 2014 as Executive Director and Global Chief Economist. Prior to taking up his position with CBRE Richard was a Director of Research for the Grosvenor Group an international business with circa $10bn of capital under management in real estate. He was also a non-Executive Director of Grosvenor Fund Management where he was involved in fund strategy, risk analysis and capital raising. Richard is the author of two books and numerous academic and industry papers. In 2012 he published Real Estate and Globalisation (Wiley Blackwell, Oxford), which explains the impact on real estate markets of the rise of emerging markets such as China and Brazil. He has extensive consulting experience and is a Visiting Professor in the Department of Construction and Project Management at the Bartlett School, University College London. He holds a PhD in economics from the University of Reading where he taught, in the Departments of Economics and Land Management, between the years of 1987 and 1998.​​​

Articles by Richard Barkham

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