Why Healthcare Is Returning to the Campus Model

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For the past several years, healthcare operators have spread out ancillary services, like dialysis and oncology. Now, healthcare providers are returning to the campus model, consolidating services in a medical campus setting. Rising demand for these services and a customer preference to the campus model is fueling the new trend.

“The expansion has been fueled by the demand of the healthcare consumers to have their healthcare services located near their homes,” Bryan Lewitt, managing director at JLL, tells GlobeSt.com. “In most cases healthcare consumers do not live close to the hospital campuses. This has forced the hospital systems operators other and other ancillaries service providers to relocate their services to the community where they want to serve.”

In addition to demand, the campus model is also more sustainable, particularly due to a changing regulatory environment.

“After being in the community in the past five to seven years the hospital system operators are finding it very difficult to run a profitable business off-campus. Due to all the regulations placed upon hospitals and reduced reimbursements most of their off-campus ventures are losing money,” says Lewitt. “However, in some instances where the hospital system has a very good market share in a very wealthy neighborhoods off campus locations work for them.”

This shift in strategy has had a major impact on leasing activity for both on- and off-campus medical buildings.

“There are many well located retail centers that have been beneficiaries of healthcare providers to their centers,” says Lewitt. “Currently 10% of all healthcare facilities in Southern California are located is in a retail center. This has doubled from only 10 years ago. Secondly, off-campus medical buildings have also benefited. The off-campus medical buildings have benefited because it is now acceptable for the investors and the financing world to value these off-campus buildings close to an on campus medical building due to the credit of these tenancies.”

Smaller medical start-up models will be most impacted by the new trend.

“The major shift is for the vacuum of hospital operators going back to the campuses for the disruptors. The disruptors have less regulations and they are not embroiled in a mission like many of the hospitals,” says Lewitt. “They also know how to make money. Therefore, we see smaller start-ups and publicly back companies looking for off-campus locations to fill the void of where the hospital operators wanted to be in the past.”

 

Source:  GlobeSt.

5 Factors Shaping Healthcare Facility Construction In U.S.

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Healthcare facility construction can be influenced by a number of things, ranging from development costs to the level of potential patient comfort.

Healthcare architecture firms, Simone Health, implements their knowledge surrounding the development of healthcare facilities to share 5 factors shaping US healthcare facility construction.

1. Integrated Approach: Need for Multi-Use Facilities

Multi-use facilities are becoming increasingly popular in the healthcare community because of their ability to offer more flexible and personalized patient care. The importance of quality patient care has become more prioritized and some small-scale centers offer a level of care, comfort and convenience that is missing when it comes to major healthcare facilities

2. Increase Technology:  Must be Used to Its Full Potential

The implementation of increased health IT resources can drastically improve the quality of care that is delivered by health experts. When constructing healthcare facilities, updated technology must be used to its full potential. Providing accurate patient records in a shorter amount of time allows doctors to better understand patient needs and can lead to faster diagnosis and treatment.

3. Sustainability

Healthcare facilities use large amounts of energy and resources in order to maintain function and operate smoothly. The construction of healthcare facilities that keep maintainable and green options in mind promotes cost-savings, sustainability, and long-term value.

4. Costs

Healthcare facility construction is driven by costs and cost-saving techniques. The right approach when it comes to the planning and design of a healthcare facility can lower the overall costs of construction. Decisions such as the prefabrication of buildings is essential for producing a cost-effective building design.

5. Modular & Prefab Options: Help Plan for Growth

Modular construction options consist of using repeated prefabricated structures. The pieces are constructed remotely and then assembled on-site, using a factory-like manufacturing technique to make the sections of the building in half the normal time. Modular and prefabricated buildings also offer an extremely cost-effective option for construction that will ultimately promote a plan for facility growth.

 

Source: PR Newswire

What Is Making The MOB Segment So Healthy?

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Since 2012, annual revenues from the pharmaceutical industry have increased from nearly $200 billion to almost $300 billion in 2018. In the same period, single-tenant medical office transactions jumped from almost $1.5 billion in 2012 to $2.5 billion last year.

What is causing the significant increase in single-tenant medical office transactions along with the robust health-care market?

The simple answer is an aging population. There is no question that America is getting older. According to the United States Census Bureau, the number of Americans 65 years and older is expected to double over the next three decades. An aging population requires more drugs, more health-care professionals and  more space to deliver medical services. For investors in net lease properties, the medical office sector can provide a strong investment opportunity to ride this seemingly unstoppable trend.

First, the space is more accessible to a wider group of investors with an average transaction size of nearly $10 million in 2018 vs. over $20 million for the rest of the single-tenant office sector.

Secondly, medical office is commanding higher per-square-foot valuations than the net lease office sector overall, with buyers paying a 7 percent premium per square foot over non-medical assets. This reflects the robust demand and healthy market fundamentals, as investors can take comfort in owning a solidly performing medical office property that commands a strong valuation.

In an investor survey recently conducted by JLL, respondents’ interest in office assets leased to health-care-related tenants outpaced that of technology, business services, government and financial services. Investors who are targeting the health-care space in 2019 indicated they are allocating on average 20 percent of their capital towards medical office assets.

Additionally, apart from industrial assets, investors indicated that the health-care sector was the most likely to exhibit a decrease in cap rates in the remainder of the year. This, along with the other factors previously mentioned, has attracted a diversified and evenly distributed buyer population. Institutional and private investors as well as REITs have been putting money into this property type, which indicates the depth of investor interest across the spectrum of buyers. Broad investor interest and increased demand is expected to continue to put owners in a strong position to sell their investments at attractive valuations in the future.

Finally, the asset class on average commands lower cap rates than the rest of the single-tenant office space, due to the mission criticality of the real estate. Its cap rate is reflective of its dependable stream of income. On average, medical cap rates are 30 basis points lower than those in the office sector overall.

As net lease investors navigate the uncertainty of the retail sector, the medical office space appears poised to offer an alternative, with strong, dependable returns that are more difficult to disrupt with technology and the internet. As long-term trends in health care continue to point toward longer lifespans and increased care, medical office space will remain critical and demand will increase, providing opportunities for investors to capitalize on this unstoppable force: growing old.

 

Source: Commercial Property Executive