Ecmweb 1841 606ecmmifig1
Ecmweb 1841 606ecmmifig1
Ecmweb 1841 606ecmmifig1
Ecmweb 1841 606ecmmifig1
Ecmweb 1841 606ecmmifig1

Health Care Update

June 1, 2006
Plenty of inexpensive land, a burgeoning population, and lots of fresh air and blue sky what is bemoaned as suburban sprawl by some is seen as a well of opportunity for the health care construction industry. The suburbs are the most affluent and the best insured, and the [baby] boomers tend to live in the burbs, says Heather Jones, construction economist with Raleigh, N.C.-based research firm FMI.

Plenty of inexpensive land, a burgeoning population, and lots of fresh air and blue sky — what is bemoaned as suburban sprawl by some is seen as a well of opportunity for the health care construction industry.

“The suburbs are the most affluent and the best insured, and the [baby] boomers tend to live in the burbs,” says Heather Jones, construction economist with Raleigh, N.C.-based research firm FMI.

In response to these factors, FMI estimates that as much as 80% of new health care construction is currently taking place in suburban areas across the nation — a trend Jones says began taking hold in the 1990s.

Overall health care construction — including hospitals, special care facilities, and medical buildings — has experienced a healthy growth rate over the past four years, with a 7% increase in the past year alone, according to Jones. She expects this steady rise to continue through at least 2010 — and perhaps beyond (Figure).

This growth, combined with a shortage of materials and skilled labor, is expected to drive up health care construction spending almost 34% from $34 billion in 2005 to $45.4 billion in 2009. Although the effect of this trend on price-per-square-footage is difficult to quantify, Jones says prices have certainly reached a new level — and are unlikely to ever drop back to where they were in the late 1990s.

According to the New York-based research firm McGraw Hill Construction's report, Construction Outlook 2006, Ohio and Oregon experienced the most growth in health care construction during 2005, increasing by 12% to 105 million square feet. The group expects another 2% bump in 2006, taking the total to 107 million square feet. So what exactly constitutes health care construction?

Hospitals currently account for 66% of this niche, while medical buildings represent 26% and special care facilities make up 8%, according to Jones, though she predicts the special care submarket will make up a larger share of health care construction as the baby boom generation ages. Indeed, much of the growth in health care is in anticipation of the needs of the aging baby boom generation. According to FMI, between 2000 and 2020, the population of people aged 65 years and older will increase 56% — from 35 million to 55 million, creating a significant demand for hospital beds and outpatient clinics. This demand will be especially prevalent in the coastal and southern states. “There will be 10 states that will have more people that are 65 and older than under 18 in 2030, and those are almost all along the coast,” Jones says.

In the meantime, the U.S. population isn't the only thing aging. A 2004 Hospitals & Health Networks survey found that 60% of hospitals and 68% of health systems need to replace aging facilities. What will happen to them? “You do hear of a fairly significant number of them that are just being flat out abandoned, but they're definitely in the minority,” Jones says. “If anything, they're retrofitting and then opening another branch of the same name out in the suburbs.”

These retrofits must address not only the structural and spatial needs of the aging hospital, but also the electrical demands of the latest medical technology. While Jones says much of this technology is moving toward handheld and wireless devices, there is still ample need for a significant amount of larger equipment that can put a serious strain on aging electrical systems.

Many of these aging hospitals are located in “built-out” urban areas where affordable housing can be difficult to come by. According to Jones, that's one reason why city hospital wages are on the rise. “A lot of the employees, like the nursing staff, couldn't afford to live in the city,” Jones says. “So now that the hospitals are coming out to the suburbs, the employees are actually looking to work and live in the suburbs. The hospitals in the cities are having to raise their pay in order to get people to come in from the suburbs.”

Nurses aren't the only ones expecting more from hospitals these days. Due to demand, private rooms in new and retrofit buildings are typically being included in new construction and retrofit projects, according to Jones.

Another way modern hospitals are evolving structurally is in height. While major hospitals were traditionally of the high-rise variety, their recent exodus to suburbia has influenced a lot of owners to go with lower and wider designs. This is partly due to lower land costs in the suburbs than in the city, which makes the option more economically viable than it has been in the past, but also “because right now if you build a 20-story building in the middle of the suburb, it's going to be the tallest building out there,” Jones says. “But as growth keeps coming out to the suburbs, [those hospitals] will probably end up getting taller.”

About the Author

Jaclyn Alcantara

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