Long-term effects of COVID-19 on health care property markets

Long-term effects of COVID-19 on health care property markets

The global pandemic has brought about a significant shift in the planning and design of health sector properties, reshaping the landscape of healthcare real estate with several notable trends and challenges.

In the UK, Prime Minister Boris Johnson pledged to build 40 new hospitals during the height of the pandemic. Simultaneously, the demand for 'touch-free' services in healthcare facilities has risen due to a fear of cross-contamination. On a global scale, China plans to add more than 28,000 new beds to its healthcare facilities.

One of the most pressing issues in healthcare real estate is the rising construction costs and financial pressures. Hospital construction costs have increased by about 20% over the past five years, averaging approximately $451 per square foot. This increase in costs affects how new healthcare facilities are planned and built, pushing for more efficient use of space and resources.

Another trend emerging from the pandemic is the increased demand for assisted living and senior care facilities. Occupancies in assisted living are improving with rate growth exceeding pre-COVID levels, indicating growing demand in this sector, which drives targeted real estate development and renovations.

Regulatory and legislative influence is another factor shaping healthcare real estate. New state-level legislation is emerging to impose stricter oversight on healthcare real estate investment trusts (REITs), particularly concerning sale-leaseback transactions. This could affect how healthcare providers structure ownership and financing of real estate assets, impacting planning and investment decisions.

A strategic shift towards outpatient and flexible care delivery is also evident. Investors like Healthpeak Properties emphasize outpatient medical buildings and healthcare discovery properties, pointing towards a future where healthcare delivery models will accommodate telehealth, ambulatory services, and life sciences research.

Healthcare real estate providers are increasingly focused on factors affecting tenants' financial stability and operational viability. These considerations influence design choices that allow flexibility for tenants to adapt to changing healthcare demands and regulatory environments.

The broader economic and policy environment presents challenges as well. Healthcare spending growth is expected to continue outpacing GDP growth, reaching 20.3% of GDP by 2033. Budget cuts, political uncertainties, and economic slowdowns create a complex backdrop that influences long-term planning, encouraging designs that optimize cost-efficiency while ensuring quality care delivery.

The pandemic has accelerated healthcare's transformation from largely inpatient-centric to a more diversified model emphasizing outpatient, senior housing, and flexible spaces. This shift prioritizes flexibility and adaptability, cost-efficiency and operational sustainability, regulatory compliance and financial transparency, and patient- and staff-centric design promoting safety in infection control and wellness.

These changes reflect a shift from traditional hospital-centric models to more integrated, dispersed, and resilient healthcare infrastructure shaped by lessons learned during and after the global pandemic. The Lancet Countdown on health and climate change report, published prior to the Covid pandemic, stated that outbreaks of infectious disease were likely to become more frequent.

As a result, work is underway to review building regulations and standards for hospital buildings and their operations worldwide. India anticipates capacity for a further 24,000 beds in its healthcare facilities, and around the world, new healthcare facilities are being designed with the aid of 3D visualisation, enabling healthcare trusts to test out new facilities virtually.

Technology is also playing a significant role in the evolution of healthcare facilities. The percentage of GP consultations conducted by phone or video conference has increased significantly due to the Covid-19 pandemic, from 3-5% to 50-70%. Technology (such as telemedicine, robotics, and artificial intelligence) is impacting facility sizes, particularly in the evolution of community diagnostic centres.

The continued growth in ambulatory care will be key to providing faster surge capacity and accounting for increased flexibility in healthcare facilities. The use of variable (often voice-activated) controls and sensors in healthcare buildings has become more common, allowing for more efficient building operations.

In the UK, the Town and Country Planning (Use Classes) Order was amended in 2020 to allow for greater change of use between various commercial, business, and service use classes. This change could pave the way for more adaptable healthcare facilities in the future.

In conclusion, the pandemic has expedited changes in healthcare, not only in how healthcare settings respond to a pandemic but to secondary changes such as technology, lifestyle, and economic factors. Global pandemics are predicted to be more common in the future due to climate change, a more connected world, and the continued rise of zoonotic diseases. As such, the focus on flexible, adaptable, and resilient healthcare infrastructure will continue to be a priority in the post-pandemic world.

References:

1. Healthcare Real Estate Insights
2. Healthcare Real Estate Adaptation Post-Pandemic
3. Healthpeak Properties: Q2 2021 Earnings Call Transcript
4. Healthcare Spending Growth Projections
5. Policy Exchange Poll Results
6. US Healthcare Providers Investing in Remote Patient Monitoring
7. The Impact of Covid on the Built Environment
8. The Rise of Community Diagnostic Centres
9. The Need for More ICU Beds in the UK
10. Digital Patient Management Tools in Waiting Rooms
11. The Continued Growth in Ambulatory Care
12. The Lancet Countdown on Health and Climate Change Report
13. Review of Building Regulations and Standards for Hospital Buildings
14. India's Anticipated Additional 24,000 Hospital Beds
15. 3D Visualisation in Healthcare Facility Design
16. The Proliferation of Zoonotic Diseases
17. The increasing demand for assisted living and senior care facilities, driven by growing populations of elderly individuals, is a significant trend in the UK housing sector, as evidenced by the rise in occupancies and improving rate growth in such facilities.
18. Investors are increasingly focused on real estate investments that offer flexible spaces, like outpatient medical buildings and healthcare discovery properties, as the trend toward remote health services and flexible care delivery continues to shape the future of healthcare policy and finance.
19. As governments around the world grapple with the costs and financial pressures associated with building new healthcare facilities, there is a growing emphasis on community-centric designs that optimize cost-efficiency while ensuring quality care delivery and promoting safety in infection control and wellness.

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