As the COVID-19 pandemic fades into the background, its effects on the behavioral and mental health real estate sector remain undeniable. The past few years have seen a sharp increase in demand for mental health services, prompting a surge of investor interest in acquiring both provider practices and real estate assets tailored to behavioral health.
Rising Behavioral Health Needs Drive Facility Expansion
During the early stages of the pandemic, mental health struggles were often underreported. However, a 2020 report from the World Health Organization highlighted a 25% increase in global anxiety and depression rates. Social isolation, remote work, and limited access to in-person care only exacerbated the crisis. In response, healthcare providers have been forced to innovate, expanding their services and infrastructure to meet this unprecedented demand.
“There’s a tremendous increase in demand for behavioral health services,” says Shawn Janus, National Director of Healthcare Services at Colliers. “And while providers have actively sought to grow their offerings, they have faced significant labor, capital, and operational challenges.”
Unique Facility Needs and Investment Challenges
Behavioral health facilities require specialized spaces that accommodate the diverse needs of mental health providers and patients. According to Marianne Skorupski, Director of National Office Research at Colliers, finding the right real estate for behavioral health services is a complex process, involving regulatory hurdles, community relations, and facility-specific design considerations. Additionally, the nuances of health insurance reimbursement models present a steep learning curve for some investors, affecting their ability to fund services, maintain operations, and drive revenue growth.
Aging Infrastructure and the Push for Innovation
Despite surging demand, much of the current behavioral health infrastructure is outdated. Of the more than 770 behavioral health facilities in the contiguous United States, only 6.8% have been built since 1970. This presents a major challenge—but also a significant opportunity for investors.
To meet growing demand, investors are exploring creative solutions such as converting existing buildings and constructing new, purpose-built behavioral health centers. Some investors are also looking into partnerships with healthcare providers and leveraging telehealth advancements to enhance service delivery. While virtual care is not always a substitute for in-person treatment, it presents a valuable complement to traditional behavioral health services. Additionally, as demand continues to rise, policymakers are paying closer attention, potentially paving the way for regulatory reforms that could further facilitate investment in the sector.
Supply Constraints Create Unprecedented Investment Potential
The current imbalance between supply and demand in behavioral health real estate is fueling strong investment momentum. Over the past decade, investment in behavioral health properties has surged by $3 billion, with $1.3 billion in trades occurring in 2021 alone—accounting for 41% of total sector growth. Since 2020, medical property sales have exceeded $310.8 billion, with more than $18.3 billion invested in medical buildings through May 2024—the second-highest sales volume recorded since 2020.
“As more behavioral health projects come to market, investors and lenders will gain greater confidence in their underwriting and benchmarks,” Skorupski notes.
The Future of Behavioral Health Real Estate Investment
We recognize the vast potential of behavioral health real estate. The sector is experiencing rapid transformation, driven by both societal need and investment opportunity. With aging infrastructure, regulatory shifts, and a supply-demand imbalance, now is the time for forward-thinking investors to act. By identifying strategic assets, forming key partnerships, and navigating the evolving landscape, investors can position themselves for long-term success while contributing to an essential segment of healthcare real estate.
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