As the end of 2021 looms closer, COVID-19 still dominates the conversation as to health care, including health care real estate. And many of the pandemic-related challenges have not changed. The staffing, supply and hospital-bed shortages that health care providers and real estate developers hoped were temporary are now long-term issues that will reshape hospital real estate and development projects well into 2022.
1. Inpatient Facility Expansion
According to the American Hospital Association, 20 percent of the approximately 5,000 hospitals in the United States need expansion. This may be in part due to the increased demand for hospital beds required to provide care related to COVID-19 and the corresponding shortage of beds for other patients. As a result of these bed capacity limitations, several hospital systems are prioritizing expansion projects that increase the ability to serve more patients.
A hospital system in Jacksonville, Florida, for example, embarked on a $460 million expansion project that includes an emergency room expansion, along with a new oncology building, new parking facility and other amenities like a Starbucks, restaurant and hotel. Another hospital in Fort Smith, Arkansas will spend $162 million to expand its emergency room, intensive care unit and parking facilities. This trend is likely to continue, with a specific focus on expansion projects for supplementary operating suites, auxiliary emergency departments and waiting room expansions. Hall Render Advisory Services’ consultant John Marshall discussed this trend in greater detail in a recent article addressing opportunities for development in the health care industry.
2. Repurposing Vacant Buildings for Medical Purposes
The foregoing expansion projects are not limited to new construction, as some health systems are opting to repurpose vacant buildings. Repurposing vacant or blighted buildings is an effective way for health systems to save costs, and may also have broader positive effects on their communities, including stimulating economic development, decreasing crime and increasing property values.
Some health systems target highly visible population centers in the community that are readily accessible to patients. When a Macy’s department store located in Meridien, Connecticut closed, for example, a health system purchased the store and plans to renovate the facility to provide outpatient services therein. These adaptive reuse projects are not limited to big-box department stores, however. A hospital plans to repurpose a Golden Corral restaurant in Peoria, Illinois to become a health care facility providing primary care and outpatient services to Medicare patients.
Despite these benefits, adaptive repurposing of vacant buildings raises building-specific challenges. Not every vacant building is able to be repurposed in a cost-effective manner. As a result, hospitals looking to repurpose a vacant building should work with their construction and development team or advisor to consider the feasibility, structural challenges, patient experience and sustainability of the project.
3. Staffing Shortages
Almost every industry faces staffing shortages as a result of COVID-19, and health care labor markets are no exception. Health care workers were furloughed, or some are reevaluating their career paths as a result of vaccine mandates. The construction industry is not immune to such labor disruption, which is resulting in delays for new hospital and development projects (including the projects discussed above) as contractors work to find qualified workers. By one estimate, contractors will need to hire 430,000 more employees in 2022 and one million more in the next two years to keep up with the increased project demand. If contractors do not meet those metrics, health systems should expect and plan for delays to their upcoming projects. Health systems working with contractors should pay particular attention to the timing requirements in their construction contracts (e.g., is there a hard deadline for the contractor to deliver a project), as well as the remedies available if the contractor fails to adequately staff the project and complete the contract on time (e.g., per-day liquidated damages remedies).