Medical real estate industry 2012 trend report part 2
As the dynamics of healthcare continue evolving, all parties involved from hospitals, to investors, to practitioners, will be better positioned to survive if they understand the trends taking place.
Throughout 2012, around 6.3 million square feet of medical office space will be delivered according to Marcus and Millichap, a national commercial real estate firm. While this is well below the annual average from 2006 to 2008, it is an increase from last year. In part 2 of my medical real estate industry trend report I’ll delve into how the factors including: healthcare information technology (IT), health organization consolidation and the 800 pound gorilla - healthcare reform, will all play a role in shaping 2012’s medical real estate.
3 Influencing Factors:
Healthcare IT:
From tele-health services to widespread adoption of electronic health records (EHRs), health IT is a growing field. While EHRs may support higher quality of care, they do free up physical storage space allowing it to be used for more critical purposes. Tele-health on the other hand could dampen growth in the years to come as treating patients, especially those who needed constant monitoring, via telecommunications will reduce office and hospital admissions while providing patient care quickly and efficiently.
With these great data requirements, it’s no surprise that data centers are a growing facility project hospitals are implementing. According to the HFM/ASHE 2012 Construction Survey 1% of hospital executives plan on constructing data centers in the next year and 11% plan on developing them in the next 3 years. With wired cable systems for building automation services a top priority as well as wireless services for patient safety features and patient charting, data centers serve a viable need for health systems looking to upgrade their data infrastructure.
Physician Practice Consolidation:
With forced cost pressures from dwindling government reimbursements and from health initiatives such as Accountable Care Organizations (ACO’s) and EHRs, a viable solution for some small practices and hospitals is the consolidation pathway. In 2011, there were 86 hospital merger and acquisition deals, up from 77 in 2010, and 107 physician group merger and acquisition deals, up from 67 in 2010, according to Irving Levin Associates, Inc. This flurry of mergers marks a momentous occasion as the way healthcare is delivered is changing and hospitals struggle to survive in this competitive market. By joining with a larger practice or even hospital as many are currently doing, smaller practices may keep tempo with capital and technology needs.
As consolidation and mergers continue to rise, this trend will give rise to larger developments. Larger groups adding more physicians will clearly need larger spaces. Likewise, hospitals buying practices located in medical office buildings have a tendency to merge small physician practices together in a single area increasing demand for larger floor plates.
Healthcare Reform:
Even though the constitutionality of healthcare reform is still being reviewed by the Supreme Court it is having a considerable impact on medical real estate. Health and hospital systems are cautious and in a, “wait and see approach” with healthcare reform, but they aren’t backing down and the medical real estate construction market in 2012 certainly will not bottom out.
Healthcare reform for many hospitals and health systems is causing a heightened focus on return-on-investment as well as a patient-centered care approach. Outpatient facilities exude both these qualities which is why it’s no surprise 16% of hospital executives indicate them as future projects according to an ASHE Construction Survey. They save patients and hospital executives money; patients don’t need to pay higher priced hospital bills, while hospitals may treat patients quickly and conveniently without all the overhead costs associated with a hospital. Health models involving retail and medical malls are also growing in popularity as hospitals are striving to reach consumer demand for increased convenience.
In this aggressive healthcare environment those organizations who fully grasp the intense strains of capital requirements, reduced reimbursements, demographic market shifts, health IT, consolidation and health reform’s vast impacts will have the foresight needed to react more quickly, be better prepared and stay solvent.
James Ellis, CEO, Health Care Realty Development Company, is a nationally recognized successful real estate investor and developer of medical office properties with a comprehensive knowledge of sophisticated real estate transactions, cost effective designs, and efficient property management.
Aaron Razavi is Associate Marketing Director at Health Care Realty Development.
Visit their blog at http://www.hcrealty.com/medicalrealestatedevelopment/
