Welcome back to the Clarion Calls: Inside Commercial Real Estate video series. By now, you're familiar with the five themes we believe are driving trends within commercial real estate and guiding our strategic investment targets: Demographics, Innovation, Shifting Globalization, Housing, and Resiliency.
In our previous videos, we spoke about the ways in which those trends impact the industrial and residential sectors. Today, we'll take a deeper look at their impact on “alternative" sectors within commercial real estate. Alternative property sectors refer to those outside of traditional industrial, residential, retail, and office.
Examples of alternatives include life sciences, specialized housing, storage, data centers, and other special-purpose real estate. Investors are increasingly attracted to these sectors for their long-term growth prospects, scalability, and portfolio diversification opportunities.
As a result, the Alternatives allocation within private real estate's institutional benchmark has increased from slightly over 4% to 13% over the last five years.
Today, we'll focus on healthcare-driven alternative property types and how each is impacted by Demographics, Innovation, and Resiliency. These include life sciences, outpatient medical facilities, and senior housing — first, let's explore each property type.
Life Sciences refers to real estate assets specially configured to accommodate biomedical related activities - such as research and development labs, biotechnology incubators, and pharmaceutical and medical device manufacturing facilities. These include mission critical spaces where scientists are developing life-saving drugs and technologies.
Next are Medical Facilities. These include specialized properties that are designed to support medical equipment and serve patients, such as doctor's offices and outpatient facilities. Historically, tenants in these buildings tend to establish long-term leases, creating a stable cash flow.
Finally, there's Senior Housing. Senior housing is meant to specifically address the needs of our aging population. Options range from independent living to varying levels of assisted living to 24-hour care facilities.
Underscoring demand for each of these assets are trends within Demographics.
First, given all we're learning about living longer, healthier lives, people of all generations are increasingly focused on their health and overall well-being.
And three of the current generations are among the largest in history, with the U.S. 65-and-over population, in particular, growing at an average rate of 3% per year over the past decade. As this population grows, we expect demand for senior housing to follow.
Baby Boomers' impact on healthcare-related real estate is also reflected by Medicare spending. Medicare expenditures are estimated to total over $1 trillion dollars in 2023, up from just over $225 billion dollars in the year 2000, which continues to drive the need for medical facilities.
Next, trends within Innovation are providing tailwinds for healthcare-driven assets. Advancements in healthcare technologies and growth in funding continue to rapidly accelerate. In fact, although venture capital investment in life science companies has retreated from its historic highs in 2021, annual venture capital investment into the sector has more than doubled over the past decade.
Interestingly, healthcare research tends to be geographically concentrated within the U.S. — Boston, San Francisco, and San Diego make up the largest nodes. As such, Clarion currently maintains much of its healthcare-related portfolio in these markets.
Lastly, we believe Resiliency is a key driver propelling growth within these sectors. While obsolescence isn't at the same levels we see with some other property types, Clarion believes that ongoing investor and user demand for modern, efficient, and specialized healthcare will continue to generate attractive investment opportunities in life science, outpatient medical facilities, and senior housing.
Overall, the themes we are following position healthcare and senior housing property types as high priority targets for investment over the long term. In upcoming videos, we'll continue to explore the many additional investment opportunities available in commercial real estate.