City&Country: Offshore-- Healthcare as an economic development driver

Rising demand for medical services to treat ageing Baby Boomers, combined with shifts in approaches to treatments to curb rising costs, will significantly increase the need for new and refurbished medical office buildings in the decades ahead, according to The Outlook for Health Care, published by Los Angeles-based Urban Land Institute (ULI) and Seavest Inc. The increase in investment and development activity involved in filling that demand will amplify the healthcare industry’s role as an economic development driver in many urban regions across the US, the report suggests.

The ULI is a global non-profit education and research institute that aims to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide. Seavest Inc is a real estate investment management firm dedicated to investing in strategic medical office buildings and related healthcare properties throughout the US.

The Outlook for Health Care, authored by nationally renowned economist Gary Shilling, documents several long-term trends and drivers contributing to the demand for both a higher number of medical facilities and different types of products: Baby Boomers living longer and requiring a variety of services; technology changes necessitating retrofits or new development; an increase in the number of people insured under federal healthcare legislation enacted last year; an increase in healthcare-related jobs; a shift towards more outpatient centres; and an increase in doctors employed by hospitals.

The report was discussed by Shilling at a forum entitled Anchor Institutions as Catalysts for Urban Investments, recently hosted by ULI in Washington, DC. “Both demand and supply factors point to rapid growth in spending on medical services and medical office buildings for many years … Medical care will continue to grow rapidly and steadily for two basic reasons — it is an essential human service and it is heavily supported by the government,” said Shilling, president of A Gary Shilling & Co, Inc, Economic Consultants.

The ULI forum focused on the potential of major employers such as medical and education institutions to shape community viability and competitiveness in the post-recession economy and in the decades ahead. “At a time when real estate markets continue to work through cycles of correction, we must not lose sight of the fundamental economic engines that create value in urban communities. High-quality healthcare certainly ranks among the top drivers,” said ULI CEO Patrick L Phillips.

“The land use implications of the healthcare industry’s expansion extend well beyond direct investments in the facilities themselves to a host of related land uses, such as workforce housing, retail and ancillary office space. This presents a prime opportunity for land use and healthcare leaders to collaborate on how changes in healthcare can have a positive impact on urban growth.”

“The same factors that provide the opportunity for our communities to make healthcare a cornerstone of economic development also argue in favour of the investment potential of healthcare real estate. Facilities of all types, but particularly medical office buildings and specialised outpatient facilities, will be needed as healthcare providers build their networks and organise to provide cost-effective healthcare,” said Jonathan Winer, executive vice-president of Seavest.

“Healthcare providers will look to investors to help fill this real estate need and the fact is that these properties have proved to provide reliable cash flow and investment returns and to perform well during both good and bad economic times.”

In his report, Shilling details the trends and drivers that will reshape development of medical facilities, leading to more buildings and different building types:
•     People over 65 have three times as many office visits per year as those under 45. The oldest of the Baby Boomers are now turning 65, the youngest will be 65 in 2029, substantially raising Medicare and Medicaid expenses.
•     Technology advances are requiring “smarter” medical  buildings, either new or upgraded, which will be financed largely by private investments.
•     Thirty-two million more Americans will be covered by health insurance by 2019, an increase of 11%.
•     Increased demand for medical services is likely to create more healthcare-related jobs than is currently anticipated as a result of the healthcare reform law.
•     Cost-control pressures from the government and employers will benefit large, profitable hospital systems with large campuses and expanding satellite facilities. Renewed growth in cheaper outpatient surgical and other facilities will also result from an emphasis on cost containment.
•     More physicians will be employed by hospitals than will be operating private practices due primarily to increasingly cumbersome record-keeping requirements, cost containment measures and opportunities for higher salaries. The need for individual physician offices will decline as demand grows for larger facilities accommodating numerous hospital-employed physicians.
•     Medical office building demand is forecast to expand by 19% by 2019, 11% of which is related to the impact of the new law and the remainder due to population growth and demographics.  
“Healthcare’s essential market character and robust government support will be stabilising factors for associated real estate markets and may protect these markets from deflation in future years,” Shilling said. — Urban Land Institute

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 858, May 16-22, 2011