Healthcare Real Estate: Looking Beyond The Indicators
With only a few exceptions, the mood was decidedly up at Thursday’s Healthcare Real Estate Conference in Chicago. The investors, brokers, tenants, developers and managers who met at the University Club came to hear about strategies and trends in development, management and capital for medical properties ranging from medical office buildings (MOBs) to large healthcare campuses to retail outpatient facilities.
Superficially, the first indicator from 2012 was a drop in medical facility construction starts. Usually, when a sector sees a drop in national groundbreaking, it’s kind of tough to read the tea leaves as anything other than a negative.
That wasn’t the diagnosis at the conference.
On a panel including Shawn Janus of Jones Lang LaSalle’s Healthcare practice, the drop in starts was likened to a deception associated with long-term factors finally clearing up.
“We saw a decrease due to the capital markets still rebounding, and a SCOTUS ruling on ACA, then an election,” said Janus. “With all that behind us, we’re going to ses greater activity. On the acute care side, that has dropped off. Community hospital starts has slowed down. But we’re going to see higher-acuity activity driven into the outpatient environment.”
Testing Positive For Jargon
The healthcare sector of commercial real estate has a set of keywords that don’t appear elsewhere. Let’s take a look at Shawn’s response and unpack it a bit.
- acute care: more or less means large hospitals
- high acuity: medical interventions for seriously ill people (acuity is another term for acuteness or severity of illness). High acuity medecine is typically conducted on inpatients, that is, hospital patients. But the general trend in medicine and the incentives are to take some higher acuity patients and treat them not in hospitals but in specialized outpatient settings. One classic example of this trend is the dialysis clinic. There was a time that dialysis for kidney patients was conducted primarily inside a hospital: that has changed in a great many places today.
- outpatient : a patient not hospitalized overnight
What he’s describing is a trend — several trends, in medical payments, technology and facilities management — that will cause an explosion in non-hospital medical facility utilization for outpatients. Strip mall spaces, office renovations, all manner of off-campus medical facilities are going to form the demand nationally going forward.
Consider it a retailizaton of medicine.
IT First, Space Solutions Next
And the trends in healthcare facilities are moving in a particular order, creating further deception in the recent numbers. The Affordable Care Act contains mountains of incentives for the adoption of healthcare information technology (HIT) including electronic medical records (EHR). Tina Waldrup, VP of HealthDirections, an Illinois consulting firm, put it this way:
“From the provider perspective: ACA is causing providers to spend much more on IT and thereby less on real estate [and creating] lots of repurposing of office space. ”
In other words, the changes are marching to the beat of the federal drum, placing priorities on reworking existing space — for now. But approximately 35 million more Americans will be insured - and that population, plus the “silver tsunami” of baby boomers aging into high medical care use – means a major explosion in demand for medical space is coming.
Watch The Source this week for more coverage of the Healthcare Real Estate Conference.