Top Trends to Watch in Healthcare Real Estate in 2024

May 9, 2024 • Liz Wolf - BOMA International

Regardless of the economic environment, people still need medical care, which makes healthcare real estate relatively stable and resilient. The medical office building (MOB) sector’s long-term leases and creditworthy tenants drive high occupancy, built-in rent escalations and predictable returns.

Healthcare just keeps ticking along,” says Shawn Janus, Colliers national director of healthcare in the U.S. “In bad times, it might not have increases, but it’s not going down – it’s “steady Eddie” --and in good times, it will continue to tick up.”

That’s not to say healthcare real estate is immune to the challenges that other sectors are facing including higher interest rates and construction costs. Slimming margins and a tough financing environment are anticipated to continue in the sector in 2024, according to JLL’s “2024 Healthcare Real Estate Outlook.” Healthcare organizations are reassessing their real estate footprints to optimize real estate assets, consolidate space and vacate underutilized properties to reduce operating costs and increase revenue.

In another report, U.S. Medical Outpatient Building Perspective,” JLL points to the continuing, booming demand for lower-cost, more-efficient outpatient sites for specialty care, primary care and behavioral health – located far from healthcare systems’ main hospital campuses.

The transformation isn’t only fueled by changing patient expectations (people want care conveniently located in nearby office and retail settings) but also reimbursement challenges and technological breakthroughs, according to JLL’s report. Technology advancements – including less invasive care options and early detection – help facilitate the shift from hospital stays to outpatient care.

And then there’s the undeniable “Silver Tsunami” --the aging baby boomer population demand for healthcare real estate. A record-breaking number of baby boomers are reaching retirement age in 2024. More than 4.1 million Americans will turn 65 now through 2027 – that’s more than 11,200 every day, according to the Alliance for Lifetime Income.

Trends to watch

--Demand for flexible and adaptive space

As the healthcare industry rapidly changes, the ability to accommodate future space needs is what makes medical properties very valuable. Healthcare and real estate stakeholders must collaborate to create spaces that not only address immediate needs but anticipate and adapt to future healthcare requirements, according to a Colliers article written by Janus. This unpredictability of healthcare demand requires flexible real estate solutions.

COVID-19, for example, put a huge strain on hospital capacities, resulting in major challenges in accommodating patients.

“There were a lot of lessons learned during the pandemic for healthcare institutions in terms of reconfiguring space – meaning flex space – to be able to quickly shift to changing patient volumes and healthcare services,” while also ensuring optimal utilization of square footage, Janus explains.

He says more healthcare systems are using modular designs, movable walls and multipurpose spaces. Modular construction allows for quick responses to transforming spaces that can cater to fluctuations and unforeseen crises. These prebuilt modular units are built swiftly and with little patient disruption.

M Health Fairview in Minneapolis-St. Paul, Minn., is using a modular, prebuilt space that accommodates 16 beds for short stay and observation at one of its hospitals. The unit’s flexible design will allow the hospital to repurpose the unit in the future as needs change. “This approach is a game-changer,” said an M Health Fairview executive in a prepared statement. “It allows us to rapidly develop the needed space without impeding current operations.”

--Medical coworking

Flex space also relates to coworking options for medical professionals. While a disruptive trend in traditional office space for some time, there are now medical coworking spaces specifically for healthcare professionals including physicians, therapists, entrepreneurs and researchers, according to Colliers. Independent practices and physicians share space, but not their core business.

These spaces are designed to provide a flexible alternative to traditional clinic settings allowing practices to rent office or clinical space on-demand. They are often equipped with state-of-the-art facilities with medical equipment, Colliers noted. Examples include ShareMD Suites, Clinicube and MedCoShare, which offer memberships allowing users to book spaces such as consult rooms and procedure suites.

--Surge in ambulatory surgery centers

Hospitals and health systems are looking to build more ambulatory surgery centers (ASCs) – away from their hospital campuses -- as healthcare delivery increasingly shifts to outpatient settings. In fact, the number of ASCs are projected to spike 22 percent over the next decade, according to a forecast report from healthcare and hospital consultancy Sg2.

More than 80 percent of surgeries in the U.S. are now performed in an outpatient setting, the Ambulatory Surgery Center Association reported. This growing trend has propelled the development of more freestanding surgical centers, often equipped with state-of-the-art operating rooms, recovery spaces and rehabilitation facilities, according to HBRE. Patients benefit from shorter wait times, lower costs and the convenience of same-day surgery.

Colliers also points to a 2024 article by Provista that states ASCs will expand their scope of services to include more complex procedures that previously were only performed in hospitals, including in the areas of rheumatology, gastroenterology, endocrinology and dermatology.

--More eco-friendly, sustainable practices

Health organizations are putting more emphasis on green building practices, energy-efficient technologies and carbon-neutral goals in their new construction, according to findings from PwC. That includes LEED-certified buildings, renewable energy integration and waste-reduction strategies.

Additionally, after years of designing clinical spaces to improve the patient experience, more health systems are designing spaces with a larger focus on mental wellness and employee burnout.  This is a way to better attract, retain and support their medical staff. They’re focusing on the well-being of healthcare professionals by “creating healing environments beyond traditional clinical settings,” noted Colliers. That includes nature-inspired designs, wellness rooms, meditation spaces, sleep pods and collaboration areas.

--Behavioral health clinic expansion 

The U.S. is seeing surging demand in the behavioral health services sector, which encompasses mental health, substance abuse and developmental disorders. More federal funding has been made available for behavioral health services, which is driving robust demand for mental healthcare clinics around the country.

“Behavioral health, probably more than any other healthcare service delivery, is exploding,” notes Janus.

While there was already an uptick in the need for mental health services prior to the pandemic, self-isolation and the uncertainties of COVID-19 intensified the challenges many people are facing. 

Janus foresees that the sharp increase in behavioral health needs will have a major impact on medical office buildings in the future. He notes that this sub-sector has piqued the interest of stakeholders--from providers and developers to lenders and investors – who are becoming very interested in the potential opportunities in this space.