COMMENTARY | COLUMNISTS | SARAH AUSTIN

Times are changing for health care real estate

The future of health care continues to change as health care providers, insurers and patients begin to fully understand and implement the Affordable Care Act. Americans are already starting to see significant changes with how, when and where care is delivered.

These changes directly affect how health care organizations use space and deliver care. CREW (Commercial Real Estate Women) San Diego recently held an educational lunch program, led by moderator Wendy Cohen of Kitchell, to discuss how the real estate industry is at the forefront of these changes.

Straying from traditional real estate

Health care real estate is significantly different than other real estate sectors. The most notable difference is the working relationship between the landlord and tenant. Ben Ryan of PMB Real Estate Services explained that after a deal closes, both parties continue to work together.

This is because the medical industry is constantly changing. This usually results in longer lease agreements because of the tenant’s trust in the landlord and comfort in the space.

Another difference is the cost of improvements going into medical facilities. “Costs are considerably higher than regular office and retail spaces,” said Travis Ives of Cushman & Wakefield.

“This also ties back into the longer lease agreements,” Ryan said.

The panel also noted that, compared to other real estate sectors, investors need to have a clearer understanding of where the health care industry is headed and proceed with more caution.

“We don’t want to invest in a system that is not in line with the way health care will be delivered in the future,” Ives said.

Consolidation of assets

To maintain profitability, many health care institutions are looking to consolidate assets and reduce overhead.

“This ultimately provides a revenue stream to reinvest in new projects,” said Kevin Pokrywa of Palomar Health.

Ives noted that it is not uncommon for new projects within a hospital to require immediate action.

“What we usually do in those instances is take inventory of the entire property portfolio and determine which department assets are important and need to stay and which ones we can move around, consolidate or even sell,” he said.

Decentralization of outpatient services

With the Healthcare Reform Act has come decentralization.

“Acute, post-acute and outpatient services are finally going their separate ways,” said Thai Dinh of Mascari Warner Architects.

“It’s important for hospitals to get outpatient clinics into the community because that’s where the patients are,” Ryan said.

Pokrywa explained that pushing doctors and specialists out into the community helps to grow and expand medical services, as well as boost patient convenience and satisfaction.

Efficient use of space

The average hospital occupies between 12,000 and 14,000 square feet. “Hospitals are trying to move as many services as possible into the outpatient facilities in order to free up space,” Dinh said.

Pokrywa added that building an acute care hospital is very expensive, so it is important to pay more attention to the revenue-generating areas.

“We usually put more equity into those areas and then see what we can move elsewhere,” he said.

Patient satisfaction also plays a role. Pokrywa explained that when Starbucks was added into the space plan of a hospital, patient satisfaction scores improved immensely. The same goes for spacious retail pharmacies and valet services.

“We’re also beginning to see more emphasis on design,” Ives said. Hospitals are putting more money into the look and feel of their facilities, adding more windows for natural light and making room for indoor vegetation.

“It’s been proven that certain environments aid in quicker healing time,” Pokrywa said.

In this ever-changing industry, flexibility is key. Hospitals need to be able to quickly and easily adjust their space.

“We need to be able to change as health care changes,” Pokrywa said.

“Ultimately, we’re gravitating toward larger footprints because practices are continuing to consolidate and are only getting larger,” Ives said.


Austin is an account manager and social media strategist at TW2 Marketing, a San Diego-based marketing and public relations firm that provides services to CREW San Diego.

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