Health Care Update

Sept. 1, 2006
Health-care construction of hospitals, special-care facilities and medical buildings has experienced a healthy growth rate over the past four years. Last year, health-care construction spending increased by 7 percent.

Plenty of inexpensive land, a burgeoning population, 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 as much as 80 percent 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.

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 percent increase in the past year alone, according to Jones. She expects this steady rise to continue through at least 2010.

This growth, combined with a shortage of materials and skilled labor, is expected to drive up health-care construction spending almost 34 percent 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 McGraw-Hill Construction's “Construction Outlook 2006,” Ohio and Oregon experienced the most growth in health-care construction during 2005, increasing by a healthy 12 percent to 105 million square feet. McGraw-Hill Construction expects another 2 percent bump in 2006, taking the total to 107 million square feet.

Hospitals currently account for 66 percent of this niche, medical buildings represent 26 percent, and special-care facilities make up 8 percent, according to Jones. She predicts the special-care submarket will make up a larger share of health-care construction in the near future. Much 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 percent — 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.

The U.S. population isn't the only thing aging. A 2004 Hospitals & Health Networks survey found that 60 percent of hospitals and 68 percent 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.”

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

Private rooms in new and retrofit buildings are typically being included in new construction and retrofit projects, according to Jones.

Another change with the recent exodus of hospitals to suburbia is lower and wider designs partly due to lower land costs in the suburbs. This makes the option more economically viable, “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.