Page 6B—
COLORADO REAL ESTATE JOURNAL
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March 2-March 15, 2016
W
hen the Affordable
Care Act was
signed into law in
2010, approximately 46 million
Americans were uninsured.
Experts estimated that ACA
would result in health insurance
coverage for 30 million new
individuals. At the same time,
real estate industry leaders
projected it would require about
65 million additional square feet
of medical-related space (or 1.9
sf for each new insured person)
to meet the expanded coverage
and increased demand. Even
without the new legislation, the
aging American population
already meant there would need
to be additional health care real
estate capacity.
But in 2010, the U.S. was
just beginning to emerge from
a recession and tight capital
restraints. So, the question
became: What is the net effect
of the ACA on the commercial
real estate industry?
Six years later, the change
in the medical real estate
industry depends largely on
how the medical profession
continues to adapt to the health
care reform law and market
trends. Commercial real estate
professionals must focus on
anticipating and managing
this shifting landscape, which
seems to favor consolidation,
convenience and cost-
effectiveness.
One area that has had a
significant impact on health
care real estate is the emphasis
on making health care as
affordable as possible. The
health care industry is moving
away from a doctor-centered
approach to a patient-centered
approach. This means the
patient now is the consumer,
and the health care team
coordinates the care. This
“team” approach created more
physical consolidation among
providers, as many doctors
are giving up their traditional
practice and joining large
health care organizations.
This consolidated approach
affects both the type and
location of properties that will
be required to provide care.
Some health care systems are
developing satellite offices in
high population areas that
are retrofitted for medical
groups. Positioning medical
office space near hospitals
also is a cost-effective way to
provide the best care to more
people. The option of leasing
space, instead of owning space,
provides more flexibility to
adapt to the changing needs
of an organization. Thus, the
change to a patient-focused
model already has resulted in a
transformation of the physical
approach to providing medical
care.
Another area that had a
significant impact on health
care real estate is the advent
of retail medical care, which
started to offset the previously
anticipated growth in medical
office space needs. Retail
medical care is highly visible
to consumers. Health care
providers nestled in Walmarts,
Targets, CVS and Walgreens
can piggyback on established,
built-in audiences, in locations
with high foot traffic and strong
branding. Retail medical care
makes service accessible, less
expensive and more convenient
for people that they serve.
During the recession, as
strip malls and out-lots in
shopping centers sat vacant,
property owners welcomed
the somewhat reliable source
of rental stream that medical
office space offered. But, as the
market begins to tighten again,
property owners may be more
reluctant to allow a health care
provider to lease space.
Ambulatory surgery centers
and centers with significant
diagnostic services require
more complex build-outs and
have significant tenant finish
costs. They also consume more
utilities than a typical office or
retail tenant. These costs may be
difficult to recapture over the
traditional 10- to 15-year average
lease. Thus, whether providers
will continue to leverage space
in retail outlets remains to be
seen in this volatile real estate
economy.
Unlike predictions made in
2010, there doesn’t seem to
be a straight-line correlation
between an increase in the
insured and an increase in
health care real estate space.
The changing approach to
how health care is provided
and the economic trends in
real estate will continue to
transform the health care real
estate industry in a new and
different landscape – one that
certainly will have to be more
consolidated, affordable and
patient centered.
Brook Bailey
Shareholder, Polsinelli,
Kansas City, Missouri
Commercial
real estate
professionals
must focus on
anticipating
and managing
this shifting
landscape, which
seems to favor
consolidation,
convenience and
cost-effectiveness.
