An article headline caught my attention the other day, “A thriving medical industry is a boon for the building.” That statement rings true from my perspective. The medical industry is doing well, and with halted construction projects from the economic downturn back on track, medical real estate’s potential is coming into full swing. There are five main contributing factors for this growth: market economics, healthcare reform, aging Baby Boomers, increase in outpatient centers and a patient centric hospital experience.
• Market Economics: Market economics might be perhaps the greatest short term contributor of medical office building (MOB) growth. Capitalization rates are down and core assets such as on-campus facilities are resurging to pre-recession prices. As hospital capital loosens and investors look to quality projects, more MOBs are to come.
• Healthcare Reform: It’s hard not to mention healthcare reform when discussing any aspect of the healthcare industry. Regardless of whether health reform is enacted or not, it has already changed the ways hospitals are run. Health systems are continually focusing on infrastructure improvements such as “green” concepts and new technologies in an effort to make their facilities more efficient treatment centers. Likewise, 61% of hospitals are moving forward with planned projects with the passage of healthcare reform, while 12% of hospitals have put their projects on hold and 27% of hospitals don’t know how health reform will impact construction projects as a 2010 ASHE Construction Survey indicates.
• Aging Baby Boomer Market: A substantial driver of medical real estate attractiveness is the wave of Baby Boomers approaching. This group constitutes the demographic that more frequently uses medical services and is expected to strengthen the healthcare real estate industry through the coming decade.
• Surge in Outpatient Facilities: Enhanced by the Baby Boomer market and in alignment with health systems adopting the ACO model, outpatient facilities have been growing. Due to their reduced operating costs, stable cash flow and lower-risk tenant base compared to other healthcare facilities, I see outpatient centers continuing to appreciate healthcare real estate.
• Patient Centric Hospital Experience: Faced with diminishing Medicaid and Medicare reimbursements and the need to increase quality of care, hospitals have increased engagement in the patient experience. Heightened focus on quality care stems from hospitals adopting a value based purchasing model (VBP) which rewards hospitals who score well on patient care quality measures and protocols. Whether through sophisticated electronics or expanded room space, hospitals are going the extra mile to provide a more comfortable patient experience.
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/