Predictions for the Future of Medical Real Estate: Increasing Demand for Outpatient Buildings and Improvements to Patient Experience

May 30, 2024 • Ella Krygiel - BOMA International

During the Medical Real Estate Conference this past May in Orlando, FL, one of the key trends discussed by speakers is the rise in outpatient buildings in 2024. Scott Brinker, President and Chief Executive Officer, Healthpeak Properties, says that the reason for this high demand could be that it is “cheaper for the patient” and is overall “a more profitable space,” during the “Direct from the C-Suite: Navigating Healthcare Real Estate in the New Normal” session.

However, according to Angie Weber, First Vice President, CBRE, she argues that many office spaces won’t necessarily work for medical practices. For example, the access can be horrible, the parking location not ideal, and the elevators not suitable for medical needs, she mentioned during the “Transformative Strategies for Leveraging Core and Non-Core Strategies” session.

In conversations with Jay Johnson, National Director, Healthcare Markets, JLL Americas, Johnson emphasizes the importance of considering both these points and more when taking on medical conversion projects. He shared his insights from the JLL 2024 Medical Outpatient Building Perspective  and the demand for improving the patient experience, particularly among specialty care and specialty care facilities.

Read the below key points from our discussion:

Why Are Medical Outpatient Buildings in Demand? 

The main takeaway from the JLL 2024 Medical Outpatient Building Perspective is that outpatient medical buildings (not to be confused with medical office buildings, a term that many are doing away with to be more inclusive) are increasing due to consumer preferences and reduced occupier expenses. 

“From a consumer perspective, patient satisfaction has never been higher in these outpatient locations,” Johnson says. “And most important, the care outcomes have been higher with fewer instances of relapse or negative consequence.”

On that note, the report found that one of patients’ biggest priorities when it comes to seeking care are the proximity and convenience that these outpatient medical buildings provide from their homes. In fact, the JLL 2023 Patient Consumer Survey reported that 40% of respondents traveled 14 minutes or less to receive care. This data aligns with patients requiring frequent and intensive care from physicians.

Consumer preferences is just one reason for the uptick in these medical facility conversions – a reduction in costs is another. In JLL’s Medical Outpatient Building Perspective, construction costs are estimated to increase from 2% to 4% in 2024, escalating the desire to limit out-of-pocket expenses through seeking second-generation space or trading free rent for additional tenant improvement dollars. This also leads to many opportunities to monetize real estate or partner with developers to free up capital and focus on patient care.

“Gradually more procedures are being allowed to be performed in outpatient settings as better patient health, in addition to lower costs and convenience, are experienced,” Johnson states. 

How Do Patient Priorities Factor into Conversion Decisions?

As noted, patients’ biggest priorities are proximity and convenience. In this case, more cancer care centers are shifting to outpatient settings and increasing locations by patients’ neighborhood hospitals or surgery centers to reduce the need to stay overnight when receiving treatment. This change is one of many that is improving the overall patient experience. “When looking at location and proximity, we conducted our patient consumer survey last year that surveyed 5,000 patients,” Johnson says. As for what owners can do for their own research, Johnson suggests going back to real estate basics “with a healthcare twist” by surveying the supply and demand factors in their location decisions.

“We’re really mapping in, not just where people are located but looking at the demographics and psychographics of certain populations, whether it’s wealth or insurance, who has private insurance, who has public insurance,” Johnson says. “We’re looking more at the clinical projections in terms of disease prevalence and the kind of demand that generates.”

Another patient priority to consider is factoring in design choices. “As an architect by education, I appreciate the importance of design and how it makes a real difference in our lives,” Johnson says. “Natural light and connection to outdoor spaces, for example, make an impact on how well a patient feels with their general health. Similarly, design can impact staff wellbeing with the downstream benefits of improved performance and retention.”

On that note, studies have shown that nature has a significant impact in improving mental health, which may optimize patients’ experiences while receiving treatment, as Johnson suggests, if they have the opportunity to walk through gardens - or simply view green spaces outside their window. As the World Health Organization (WHO) predicts 68% of the world population to live in urban areas by the year 2050, the value for adding green spaces to property development projects may be expected to grow.

Patient Experience Improvements

Among the discussion in adding outdoor spaces to these medical outpatient buildings, another factor touched on from the Medical Real Estate conference was elevating the patient experience. Of those thoughts, one of our speakers, John Fard, System Director Real Estate, Commonspirit Health, from our “Transformative Strategies for Leveraging Core and Non-Core Assets” session emphasized that the patient experience is dependent on good care and wait time.

“Any little inexpensive differentiator makes it much more appealing to patients,” Fard says. For example, any additions to the overall aesthetic of the treatment area such as creating “softer lighting” can help boost morale when considering the mental toll patients experience when receiving care, such as those affected by cancer, for instance. 

“Treatment efficacy and patient experience” are the two essentials Johnson describes when taking into consideration these development projects. These innovations will not only apply to cancer care, as described, but will apply to behavioral health, orthopedics and rehabilitation facilities, especially as demand for these specialties continues to grow. According to JLL’s latest research, behavioral health is one of the most active specialties in seeking new office spaces. Orthopedics and rehabilitation are growing as well, as people ages 65+ are becoming more active, as found in the American Academy of Orthopaedic Surgeons (AAOS) report. 

Despite rapidly growing populations and heightening needs to address health concerns, as the JLL research suggests, most places have not had seen a surge in dedicated medical outpatient buildings under construction. Why is that? “The rising cost of construction and unpredictability of where those costs, including materials, labor and interest rates, will be in the future have dampened construction, whether a conversion project or ground-up new development,” Johnson says. “Many are frozen and in a wait-and-see mode and have prioritized what capital they are spending on absolutely essential needs, which have generally slowed new development.”

The underlying demands for healthcare continue to increase, as Johnson states. “There are just not enough practitioners, nurses, doctors, other kinds of technicians that are coming online to meet the needs of the growing population and to replace the aging clinical workforce. Technology innovations will likely increase clinical capacity and productivity, but other changes will be needed as well.”