HEALTHCARE'S RETURN TO NORMAL? HOW THE SECTOR'S RECOVERY CONTINUES TO STABILIZE
Written by: Adam Schindler
Adam Schindler specializes in business development and portfolio management, including financial planning, modeling and analysis for corporations, law firms and nonprofit organizations. Schindler’s practice focuses on aligning the needs of occupiers of space with strategic real estate solutions. Check out his post on Colliers Knowledge Leader here.
In the throes of the COVID-19 pandemic, the healthcare sector was turned upside down. In hospitals, ICUs overflowed and supply rooms were empty amid widespread shortages of crucial personal protective equipment (PPE).
During this time, planned expansions and growth strategies for many healthcare organizations were immediately paused. Non-emergency medical appointments and procedures halted or were moved to a virtual setting; by April of 2020, telehealth utilization had spiked 78 times higher than ever before. In September of 2020, a McKinsey survey reported that 40% of respondents had canceled upcoming appointments, including routine checkups and treatment for chronic conditions due to the pandemic.
Two years later, the industry’s recovery continues to progress as it swings back toward pre-pandemic levels of activity. Signs that healthcare is stabilizing include high demand for medical services, the renewed need for physical office space, and increasing real estate expansion among health systems and specialty groups.
In-Person Services are Back in Demand
There was a sharp decline in demand, and availability, for in-person healthcare services after the onset of the pandemic.
The Commonwealth Fund reported that in early April of 2020, the number of visits to ambulatory practices declined nearly 60%, while JAMA reported elective surgeries decreased 48% from 2019 levels during the same period. The three primary reasons people deferred care were closed providers, fear of contracting the virus, or financial instability caused by repercussions of the pandemic.
Today, telehealth utilization has leveled out at 8%, a significant decline from April 2020, but will remain a key method of care delivery for certain areas such as behavioral health. While data shows 64% of patients are satisfied with their telehealth experience, most prefer to see their doctors in-person. Surgery rates, which had rebounded by the end of 2020, have remained steady.
The Need for Space has Renewed
As pent-up demand for healthcare services is bubbling to the surface after two years, more practices are realizing the growing need for space. According to Colliers’ latest healthcare report, demand for medical office buildings (MOB) is outpacing supply, and vacancy fell by 10 basis points in 2021.
Not only are appointments up, this rise in in-person services has renewed the need for operational space – but it may look different. Healthcare facilities are increasingly occupying non-traditional spaces, like retail centers.
The effects of the pandemic and need for social distancing has led to many practices eschewing waiting rooms or lobbies, adopting digital alert systems, and asking patients to wait in their cars for appointments.
Another notable change in how healthcare businesses are occupying space is the rise of co-tenancy among different practices and specialty areas. An urgent care combining with a physical therapy practice, or primary care clinic co-mingling with a specialist, is beneficial for practitioners looking to expand without taking on a large lease. This model offers patients a “one stop shop” experience between different appointments and health services, adding time back into their day.
Pressing “Play” on Expansion
With the increased rate of in-person medical services returning to pre-pandemic levels and driving the need for space, practices are looking to re-establish their physical services or expand their footprint.
Colliers’ research shows there are currently 1,092 healthcare real estate projects underway, and 703 MOB projects currently under construction, and many retailers are aggressively expanding their healthcare offerings and locations.
The impacts of COVID-19 are still lingering in healthcare. While the path to recovery is not linear, the sector appears to be on the upswing as demand for in-person medical services surges.