Healthcare is one of the strongest parts of the economy right now. According to the U.S. Bureau of Economic Analysis, it is the nation’s largest sector by number of employees, having just surpassed the retail trade. Lest one think that this is due to retail’s woes, healthcare has been on an unflinching increase for decades. The industry even added new jobs every month during the recession.
And the industry is not only growing, but evolving. Many medical procedures are now conducted outside of traditional hospitals. Post-acute settings—rehab centers, ambulatory care, outpatient surgery centers, medical offices, skilled nursing facilities and the like—are exploding on the landscape.
It doesn’t appear that this trend will abate any time soon. One direction the industry is turning is toward “micro hospitals.” These facilities have nearly all the capabilities of a traditional hospital, but at a fraction of the size; they are usually less than 50,000 square feet and only feature one or two dozen beds. Micro hospitals are designed to be more efficient on cost and operations, while providing greater patient access and reducing hospital transfers.
“While I have not seen any accounting on the trend, It should save on health care costs,” said Patrice Marks, executive vice president, medical division, Keller Williams Chicago O’Hare. “Because the number of beds are fewer than a hospital, it does not compete with area hospitals.”
Rockford, IL-based Mercyhealth Systems has proposed the first micro hospital in the state for the corner of Route 31 and Three Oaks Road in Crystal Lake, IL. The plan includes building a 13-bed facility with private inpatient and intensive care beds, two operating rooms, a 24/7 emergency room as well as ancillary services.
The aging U.S. population is also driving development in new directions. “Memory care is a huge, growing segment within seniors housing over the last 10 years or so. It has almost become its own product type,” said Ben Firestone, founding partner and senior managing director, Blueprint Healthcare Real Estate Advisors. Senior housing facilities specializing in memory care are designed to cater to those with memory disability, dementia or Alzheimer’s. Since these patients aren’t being treated for a physical impairment, they can operate more efficiently than a traditional hospital.
This growth in non-hospital medical service providers comes with a “retailization” of healthcare real estate. More and more specialized facilities are opening up in strip malls and single-tenant outparcels adjacent to shopping centers. “You’re seeing a lot more efficiency in the quality care down the acuity spectrum,” Firestone said.
These smaller, post-acute facilities have the freedom to build new or renovate an existing property. “If they can rehab an existing space, it could be less expensive, but if the location is perfect for them and the structure is old and not conducive to what they need, they may tear down and build to suit,” said Marks. While some spec buildings are going up, the unique needs of post-acute operations mean that most medical office projects aren’t being built without some pre-leasing in place.
Medical office retailization is occurring in other forms, such as the partnership between Advocate Health Care and Walgreens. Advocate currently operates 59 clinics inside Chicago-area Walgreens pharmacies. The in-store offices provide physicals, vaccinations and treatment for common illnesses and injuries.
“If the medical portion becomes a large driver of the retail, the medical portion may take more space, meaning that future locations may have a larger footprint,” said Marks. “If the retail remains the driver in the current locations, the model may remain the same.”
However, Marks doesn’t believe that a medical component inside existing retailers will have significant near term impacts. “The more immediate question is how retail facilities will be retooled for medical uses,” she said.
Recession-fueled retail vacancies created an opportunity for medical tenants to take space. These properties were already equipped with parking, signalized corners, signage and had the proper size requirements. “Some communities fought the change as it did not bring in sales tax dollars,” Marks said. “But after the centers were dark for a long time, they came around.”
As the healthcare industry continues to evolve, it will also change the commercial real estate landscape. “I think you’re going to see more senior housing, more medical retail and more alternatives from the acute-care hospital come up in the universe of healthcare real estate,” Firestone said. “It’s an interesting time and there will be a lot of shift in the marketplace.”