Big changes bring big activity to healthcare market

0824-13

by Dan Rafter

When Bob Titzer looks at the healthcare real estate market in Chicago and across the Midwest, he sees plenty of activity. Hospitals are building new medical office buildings in urban areas and suburbs. Developers are expanding existing hospitals. And medical groups are opening ever more free-standing clinics and emergency rooms.

But what is behind all this activity?

Titzer, executive vice president of HSA PrimeCare, points to one factor: change.

“The medical office building market is strong and it is active,” he said. “And the underlying reason for that? There has been a lot of change in the healthcare industry. These changes in the industry, the growth of healthcare in general, has made this an extremely active market today.”

Big changes

What are the big changes to which Titzer is referring? First, there is the aging of the U.S. population. As the country gets older, people visit doctors more often and end up in the emergency room more frequently. They also schedule more elective surgeries and submit to more medical testing.

At the same time, health insurance is available to more people today. That, too, has provided a boost to the healthcare real estate market. Hospitals and medical groups need more facilities because they are serving a greater number of patients.

Finally, there is consolidation. Doctors today are combining into larger medical groups. These larger groups are opening new offices in new locations.

And these new offices aren’t only opening in the middle of big cities. The suburbs is seeing plenty of medical office activity, too, Titzer said.

“The activity is definitely spread around,” he said. “For us, Naperville has always been a strong area for medical office activity. But in all of the suburban areas where population growth is the strongest, we have seen strong activity in the medical office building sector. Naperville is just one example. We are seeing new facilities, say, in New Lenox, too. It’s the same story there: There is simply more demand for medical office buildings throughout the Chicago area.”

A long-term trend

Titzer doesn’t expect this activity to slow anytime soon. Hospitals and medical providers have changed their delivery model. This is largely because of the changing demands from patients.

Patients no longer want to drive as infrequently as possible to large hospitals. Getting to these major facilities can be a hassle. Patients don’t want to work their way through sprawling parking lots just to get a routine medical test.

“There is an effort on the part of healthcare providers to bring their medical services out to where the consumers are,” Titzer said. “They want to make the process more efficient. A hip replacement or a knee replacement that once was done at a hospital can now be done in an outpatient setting. These procedures can be done in some neighborhood in the suburbs. Formerly, that patient had to go downtown or to a hospital in a further-away suburb. Now everything can be done closer to home.”

And that convenience factor really is the number-one amenity that patients are demanding today from medical office buildings.

While new apartment buildings today need to provide such amenities as rooftop pools and high-end fitness centers, and modern office buildings need flexible layouts and plenty of bike storage, medical office buildings need to provide one main amenity: ease of access.

“It needs to be easy to find and easy to park,” Titzer said. “Patients want it to be easy to get from their parking spots to the front door. That’s why medical office buildings don’t have steps, don’t have any barriers to entry. They lack convoluted entryways. They should also have a nice lobby. A lot of patients who come to these centers are mobility-impaired. They need to be easy to get into and out of. Some might come with amenities such as a coffee bar. That is great, but patients are primarily looking for ease of access.”

Titzer predicts that the medical office market in Chicago, its suburbs and across the Midwest will only grow stronger in the coming years. After all, the U.S. population isn’t getting younger, and more people continue to gain access to health insurance.

At the same time, older medical office buildings will become outmoded in the eyes of patients, and will need to be replaced, Titzer said.

“There will be a continued demand for newer and more modern facilities,” Titzer said. “Older facilities are having a harder time attracting tenants today. There is already a migration toward newer, nicer facilities. That will continue. Some of the older facilities will be repurposed into more modern medical office space. But it can take a significant investment to do this. Some will be converted into other uses, and some will be torn down or used for office space.”

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