Will the duration of COVID-19 highlight the vulnerability of the healthcare sector and lead to a reassessment of its much discussed “recession-resistance”? Or, will this pandemic reinforce and underscore healthcare’s sustainable, steady strength?
HEALTHCARE’S DECADES-LONG PERFORMANCE
For the past three decades the healthcare sector has been one of the steadiest growth performers in the economy. It hasn’t mattered if the rest of the economy was growing or in recession—spending in the healthcare sector continued to grow, creating more jobs and more demand for commercial real estate. The healthcare sector’s performance has been driven by strong underlying fundamentals, particularly an aging population and rapid advances in medical technology. This combination of steady growth and strong fundamentals has led to the perception that healthcare is recession-proof and that demand for medical space will rise no matter what happens to the rest of the economy.
Aging Population: 65 or older
Source: U. S. Census Bureau; Moody's Analytics Forecast, Kaiser Family Foundation
THE PANDEMIC’S IMPACT
When COVID-19 hit and precipitated a recession, it raised doubts about the wherewithal of the healthcare sector. As the economy was shutdown and the healthcare system focused on the pandemic, spending on healthcare collapsed, physician offices were closed temporarily, and healthcare employment fell sharply.
Change in Employment 2020 Recession
Source: U. S. Bureau of Labor Statistics
Looking ahead, the future remains bright for the healthcare sector as the fundamental drivers will likely remain strong. An aging population both in the U.S. and globally will mean increasing demand for healthcare. Once the pandemic is behind us, this sector will resume its long-term trend.
Annual Growth in Healthcare Spending
Source: Centers for Medicare and Medicaid Services