Economist John Chang says this sector should remain strong
By John B. Mugford
Economist John Chang of Marcus & Millichap shared his 2025 outlook at the recent GlobeSt. Healthcare conference. (HREI™ photo)
For professionals involved in the healthcare real estate (HRE) sector, there are so many questions heading into 2025.
A few of those questions, among others, include: How fast and how far will the U.S. Federal Reserve Bank continue to decrease its federal fund rate, therefore decreasing borrowing rates? Will the Fed, through its policies, help the economy achieve a soft landing? Will inflation slow down? What effect will the policies of a new presidential administration have on the economy, business and the HRE business?
Other questions, specifically about the HRE sector, include: Will the volume of new construction of medical outpatient buildings (MOBs) pick up from its rather steep decline of recent years? Will MOB sales volume rebound from its own slowdown of the past couple of years?
To help answer these questions as well as others, John T. Chang, an economist and senior VP, national director of Research Services with Marcus & Millichap Inc. (NYSE: MMI), gave the keynote address during the GlobeSt. Healthcare conference in Scottsdale in early December. His main focus was on looking at the year ahead.
As for the overall U.S. economy, Mr. Chang noted that while it is difficult to predict GDP (gross domestic product) growth, a consensus of economists predict that 2025 will see such growth of 2.1 percent.
“A year ago, the forecast for GDP for (2024) was about 1 percent, and we were all expecting a recession,” he noted. “That hasn’t happened, as we have 2.7 percent expected growth for this year.”
As for interest rates, Mr. Chang noted that the Federal Reserve will likely slow its pace of rate reductions in early 2025 compared to what many observers originally thought. As the end of 2024 was nearing and the Fed had made a final 0.25 percent rate cut on Dec. 18, the federal fund rate ranged from 4.25 percent to 4.5 percent.
“When we look forward to June of 2025, there’s about a 60 percent chance that we’re going to be right around 4 percent in terms of the federal fund rate,” Mr. Chang said, meaning that would require one rate cut in the first half of 2025. “It may go lower, it may not. I think that a lot of the policies that are being discussed after the election are a little bit more inflationary. (As we) looked at this in October (2024), with the probability of rate reductions, we were looking at being in the mid-3s by June as a very high probability. But post-election, that’s been pulled back. There’s a question of tariffs, questions of immigration and labor shortages are top of mind for the Federal Reserve. So, they’re going to hold back and wait, and it’s going to be a period of uncertainty.
“We’re not going to really have clarity, probably until somewhere around March at the soonest before we really see how these pieces will fit together.”
How about the HRE sector?
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