By Jack Bass II
As the year draws to a close, healthcare facilities are recovering from the worst public health crisis in more than a century. They are benefitting from fewer COVID-19 hospital admissions, a resumption of postponed or canceled elective medical procedures, continued strong investor demand for this attractive asset class, and federal stimulus funding, among other factors.
As a result of the pandemic, hospitals and other healthcare systems created or accelerated practices that established new trends in the healthcare real estate market for years to come. What follows are some of those trends and how they affect this property type.
A Boom in Behavioral Health Properties
More healthcare companies continue to invest heavily in facilities providing behavioral health services. Various factors, such as improved government reimbursements, have been driving demand for these services. But, the rising mental health and substance abuse problems reported during the pandemic have been partly attributed to the building boom.
A National Council for Mental Wellbeing study in 2020 reported that 54 percent of behavioral health organizations expect an increase in demand for mental health services.
The healthcare industry’s focus on improving mental health has produced a growing number of building projects nationwide. Some examples include UTHealth’s 224-bed, 220,000 square foot psychiatric hospital in Houston, billed as the largest in the country, and Seattle’s University of Washington Medical Center’s planned six-story behavioral health facility.
Virtual Healthcare on the Rise
Early in the pandemic, many healthcare providers turned to telemedicine as a way to provide some medical services during lockdowns and to bring in sorely-needed revenue.
Prior to the pandemic, telehealth struggled to gain widespread acceptance among healthcare providers. But the technology got a big boost when the Centers for Medicare and Medicaid Services made telehealth services eligible for reimbursement.
The use of telehealth has declined since the early pandemic as healthcare facilities lifted restrictions on in-person visits. However, telehealth and other aspects of virtual medicine are here to stay, as more healthcare providers use this technology for primary care and management of chronic illnesses.
One indication of its increased usage is that digital health services grew to $15.6 billion in 2020, nearly double the amount in the prior year, according to a Techcrunch article on virtual health. Another study, conducted by consulting firm McKinsey & Co., found that telehealth adoption grew from 11 percent in 2019 to 46 percent in 2021. An example of telehealth’s impact on real estate may include smaller physician offices with fewer exam rooms.
Senior Housing on the Mend
The pandemic upended healthcare facilities for seniors who were among those most susceptible to COVID-19. Operators of senior housing, which includes independent living, assisted living, memory care, and skilled nursing care, took a substantial hit on rental revenue and profit growth. Like other healthcare facilities, government funding helped limit the virus’s economic impact on certain senior housing facilities.
Currently, this sector’s performance has improved as a result of success with vaccination rollout and safety protocols, which have limited the severity and frequency of infection among senior housing residents and staff.
Senior healthcare housing also has been supported by swelling consumer demand, driven by a growing number of aging Americans in need of these services. According to U.S. census figures, more than 10,000 people turn 65 every day..
Other Healthcare Real Estate Trends
· Healthcare facilities are creating more flexible spaces in order to respond more easily to other health crises. During the height of the pandemic, hospitals were forced to create makeshift facilities or other arrangements to handle an onslaught of infected patients. Other reasons for flexible spaces include improving staffing efficiency, increased use of technology and changing reimbursement practices. According to a joint PwC and Urban Land Institute report on emerging real estate trends, there will “likely be a massive shift” in traditionally designed spaces in healthcare facilities and other commercial property types as a result of the pandemic. Examples of this trend include converting operating rooms, standard patient rooms and other hospital spaces into ICUs to treat seriously ill patients in the event of a public health emergency like the pandemic.
· Healthcare companies will improve the supply chain of PPEs and other medical supplies to avert further disruptions. During the pandemic, many healthcare providers encountered scarce supplies needed to protect patients and themselves from the spreading virus. Their inability to procure adequate supplies was blamed on outsourcing the manufacturing of most of these items to China, which couldn’t ship supplies to the U.S. because of the pandemic. The U.S. is seeking increased domestic manufacturing of critical medical supplies to avoid future supply-chain dislocations.
· Investment in this property type is on the upswing, ending a pause on various healthcare real estate building projects earlier in the outbreak. The pandemic-driven retreat in investing in these deals could be viewed as an aberration, as healthcare facilities have long attracted strong investor demand because of low interest and default rates, longer-term lease agreements, and ample tenant demand and occupancy rates. One industry report estimated that spending on healthcare construction projects will reach $45.8 billion in 2023, compared with an estimate of $44.9 billion in 2020.
· Non-traditional healthcare facilities will continue to expand. Consumer convenience is one of the reasons that primary care providers are setting up shop in pharmacies, shopping malls, and big-box retail locations like Wal-Mart. Meanwhile, the popular trend of building free-standing urgent care clinics and emergency rooms has leveled off due to an over-saturation of these facilities.
· More independent physician practices will become part of healthcare systems. Hospitals acquired 3,200 physician practices between 2019 and 2020, an 8 percent gain in hospital-owned practices, according to the Physicians Advocacy Institute.
Jack Bass, MAI, is a Senior Managing Director-Healthcare at BBG, a national valuation and assessment commercial real estate services firm.
The Editorial Team at Healthcare Business Today is made up of skilled healthcare writers and experts, led by our managing editor, Daniel Casciato, who has over 25 years of experience in healthcare writing. Since 1998, we have produced compelling and informative content for numerous publications, establishing ourselves as a trusted resource for health and wellness information. We offer readers access to fresh health, medicine, science, and technology developments and the latest in patient news, emphasizing how these developments affect our lives.