At the upcoming Connect Healthcare Real Estate 2023 event, taking place on Sept. 27-28 at VEA | Newport Beach Marriott, industry experts will share their insights during the panel discussion “State of the Market & The Future of Healthcare Real Estate.” To provide a preview of this topic, we spoke with Garth Hogan, executive managing director for healthcare at Newmark. Here is what he had to say:
Q: How does increasing operating costs for healthcare systems affect their use of real estate?
A: Rising operating costs have certainly impacted real estate decisions for healthcare systems. During times of financial strain, these organizations prioritize capital towards core business lines and maintaining existing facilities rather than investing in growth or new development projects. However, consolidation can help lower costs and free up capital to resume strategic construction projects in the future. It’s important to understand how space is being utilized in order to cut out excess expenses.
Q: With COVID-19 largely behind us (but not entirely), what lessons have we learned about its impact on healthcare delivery?
A: The pandemic has taught us a lot about how people receive medical care. As remote work and virtual doctor visits become more common due to grief and uncertainty surrounding traditional treatment options during this time period , it’s clear that consumer behavior is changing rapidly . This shift has created demand for new hospitals , ambulatory surgery centers (ASCs) ,and medical office buildings that are designed specifically with these changes in mind . For example,in Northern California our Folsom Ranch project includes UC Davis Health System and Dignity Health who recently acquired nearly 60 acres land where they plan on building MOBs as well as hospitals.In addition,in Stockton/Lodi area our team just launched an opportunity fully entitled hospital development which was highly demanded by local residents.
Q : Are there any trends indicating an increase in consolidation among health care systems? If so,w hat implications does this have f or r eal e state?
A: Yes, consolidation among healthcare systems has been on the rise in recent years and this trend has only accelerated during and post-pandemic. In late 2022, we saw a significant increase in the size of these deals with more mega-mergers taking place. This is largely driven by cost-cutting measures as well as strengthening negotiating power with payors and supply chain contracts. However, this type of M&A activity often results in redundant real estate footprints for these organizations. We have seen an uptick in demand for rural markets near major cities due to the growing number of people working from home . Our team has been actively assisting health systems with returning space to landlords or selling off vacant properties that are no longer strategic following consolidation.
Q: How is venture capital investment impacting healthcare? What areas are receiving increased attention?
A: Venture capital fundraising continues to grow , especially since we’ve learned so much from dealing with COVID-19 . Traditionally , life sciences and biotech sectors received most VC funding followed by technology companies utilizing AI technologies.However,due to pandemic investors slowed down start-ups but there’s still plenty dry powder available looking for opportunities.Technology sector seems very attractive because it can provide cutting-edge data analysis tools which can improve patient outcomes.We also noticed private equity firms showing interest towards hospital consolidations because they see it as an opportunity where they could get large returns on their investments.
This article was originally published on ConnectCRE.com
