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Hospital and nursing home construction remain strong

By Jim Haughey, Director, Research and Analytics, Reed Construction Data

September 1, 2006

Building Design and Construction

Healthcare construction spending will continue the steady, double-digit growth it's experienced since early 2003. Spending is forecast to rise 14% this year and 13% in 2007. However, trends for the three healthcare sectors—hospitals, medical office buildings, and nursing homes—are distinctly different.

Hospital facilities, which account for 70% of the healthcare market, is the strongest sector. Spending for hospital construction has more than doubled since the bottom of the 2001 recession. Job site spending in June was 28% higher than a year ago with the value of new starts more than double a year ago. Hospital starts reported by Reed Construction Data in the first half of 2006 were 39% higher than the same period last year; next year, job site spending growth should be 20%.

Construction spending for medical buildings, including offices, clinics, and research labs, is currently 56% higher than 2001 levels, but has recently declined to levels 12% lower than a year ago. One reason: reduced insurance reimbursement rates have made medical doctors cautious about office renovations and expansions.

Construction spending for nursing homes, assisted living facilities, and other care facilities has not yet recovered to 2002 peak spending levels, and is currently 15% below the last peak level. However, spending for extended-care facilities has picked up recently and is now nearly 40% higher than a year ago. The value of starts jumped 40% from early 2005 to early 2006. Continued expansion is expected in 2007-08 as a surge of recent starts is completed.