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Industry Leaders Discuss Healthcare CRE

By Roland Murphy for Arizona Builder’s Exchange

Regulatory Changes Drive Shifts in Usage, Leasing and Service

Valley Partnership’s “Friday Morning Breakfast” May 29 drew a packed house to hear a panel of area experts share their views on the current and future states of commercial real estate development in the healthcare market.

Following remarks by Scottsdale Mayor Jim Lane about the city’s growth, challenges and emerging status as a healthcare growth corridor in partnership with other Valley communities, moderator Tom Weinhold convened the panel. Panelists were:

  • Kip Edwards, System VP for Design and Construction at Banner Health
  • Sharon Harper, President and CEO of The Plaza Companies
  • Mike Brinkley, Principal at MCB Consulting
  • Steve Stack, President of Devenney Group

Occupancy and usability timelines, changing patient/customer needs, changes in mindset from both the patient and provider, and structural and logistical needs were all touched on in the discussion.

New Services Drive New Space Requirements

Hospital readmission rates and physician performance reviews are major new considerations under the Affordable Care Act. As a result, a significant market space has expanded in the industry. Panelists agreed that where once private practices in medical office buildings made up one end of the field, and monolithic hospitals made up the other, space needs are shifting to accommodate a growing middle segment.

Services such as wellness clinics, urgent care facilities, and physical and behavioral therapy providers account for a much greater percent of the market, and their space needs are growing.

Traditional private practices continue to dwindle as more and more doctors go to work for hospital-based partnerships, Edwards said to general consensus. Stack added that as a result, the physical healthcare space has changed from the traditional lobby adjoining long corridors with offices and exam rooms on each side to more flexible, open and collaborative designs.

Shorter Leases, Larger & More Flexible Spaces Becoming the Norm

Harper said these changes have also impacted everything from anticipated lifecycles for space to the lengths of lease terms. Where once lease terms could be expected for as long as 15 years, more and more healthcare practices are requesting, and getting, three years now due to the uncertainties their businesses face. Several of the panelists, Harper included, said it has become virtually impossible to predict space needs five years from now, much less the 15 years or more that could previously be planned for an MOB.

Harper added that the smaller a space is, the harder it is to build. Edwards shared this view, estimating 10-15 KSF as a threshold for which viable building was even possible.

Providers Going Retail and Building Space to Reflect Branding

Healthcare providers are learning from the retail segment, the panelists agreed. They are offering enhanced services, extended hours, tele-health and other online options, such as customer service centers and remote monitoring.

While generally beneficial to patients and the industry, this retail approach presents its own challenges.

Technology infrastructure and flexibility must now be more a part of the building planning process than ever before. With providers coming more and more frequently under common brands in physically proximate spaces, those spaces now have to be designed both for functionality and for brand inclusion concerns, such as aesthetic consistency and patient traffic flow from one facility to another, Brinkley said.

Having more service providers collaborating close by each other enhances patient care, but generates logistical concerns, Edwards said, particularly pointing out that providers have historically preferred to be on the first floor of buildings. Stack and the other panelists agreed designing for increased access and minimized inconvenience is an ongoing challenge, as is parking planning.

Logistics of Overall Experience More Important Than Ever

Under the old way of doing business, patients would often drive from the physician’s office to the testing center or imaging service to the pharmacy, etc. Since these were freestanding buildings in many cases, patients got used to being able to park nearby, Edwards said.

In the new reality, those services may be spread across a small campus, meaning parking near one point in the destination could leave patients farther from their parking spaces than they would like by the end of their experience.

In the end, the panelists agreed the landscape is in flux and that long-term projections cannot be set in stone. Opportunities for successfully meeting the industry’s space and structure needs exist for companies willing to remain flexible and adapt to the times as they continue to change.

       Top Takeaways 
Impossible to predict space-needs long term
Flexibility is key
Parking is critical
Spaces have a broad range of uses – from MOBs to acute-care hospitals
Technology, particularly for collaboration, is a disruptive force driving change
Retail, branding and enhanced services are the new normal

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