Consumerization of healthcare shifts regional real estate focus

The “consumerization” of healthcare is helping to shape trends in healthcare real estate, according to Jonathan Satter and Gary Gottlieb, principals at commercial real estate company Avison Young.

Based in West Palm Beach, Fla., Satter and Gottlieb say consumerization is “contributing to significantly less hospital usage in South Florida with the number of discharges decreasing by the thousands.”

Consumerization, an industry trend prompted by the increased shifting of financial risk from insurers and employers to patients, means individuals have become more proactive than ever about medical decisions, seeking out specialists and arming themselves with knowledge about specific medications.

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Statistics from the Florida Hospital Association bear out Satter and Gottlieb’s claims. Total discharges dropped to 2.4 million in 2013 from 2.6 million in 2011, while total patient days fell to 10.9 million in 2013 from 11.8 million in 2011. Inpatient surgeries, meanwhile, slipped to 557,238 in 2013 from 671,787 in 2011.

As a result, they say, both patients and providers seek new types of office environments in which to receive and offer healthcare services. Specifically they cite two trends:

• Many healthcare providers – including urgent care centers, specialists, diagnostic facilities and small hospital branches – are now setting up shop in both freestanding and “end-cap” spaces in retail plazas. Further, these healthcare services locations are reaching deeper into local communities, no longer tethered to nearby hospitals.
  “We’re seeing the hospitals going off campus to provide diagnostic and other services in the communities,” Satter said. “It’s much more affordable and profitable for them to implement these off-campus facilities.”
• Subleasing by tenants of large private hospitals is becoming more common as medical practices seek to cut costs and steer patients to their facilities.
  “Now we see that hospitals and healthcare providers are offering some of the IT and infrastructure backbone services,” Gottlieb said. “So you’re seeing a management component without necessarily owning the practice where they would go in and lease space from a medical office building developer, and then backfill with physician practices in the hopes that they’ll get a lot of referrals by providing that management level of service and other things that are very costly to start up.”

Paul Zeman, president of National Healthcare Capital Markets Group and partner at Bull Realty in Atlanta, says the disadvantages of retail space still outweigh the advantages.

“The benefits are that you get a lot of high visibility and a lot of foot traffic,” he said. “But the problem is that a lot of retailers, when they build a center, don’t budget or plan for tenant improvement (TI) dollars of $60, $70, $80 per square feet. They build in $4 to $5 a square foot. So unless the health system or the tenant was thinking about making a very long-term commitment to the property and investing their own dollars, there’s little TI to be had.”

Zeman, who publishes a quarterly newsletter about the U.S. medical office building (MOB) investment market, says a four-year decrease in vacancy rates recently ended thanks to the completion of new MOB construction following an extended recession-driven hiatus.

“We’re starting to see the effects of more medical space coming to the market,” he said. “And now we’re seeing an uptick in rental rates. That’s a good sign for hospitals that own property. It means ultimately they would be able to get more for their space from tenants.”