Healthcare construction remains healthy

August 11, 2010

Healthcare construction spending will continue to expand faster than overall economic growth during the next two years, having recovered from a period of slow expansion earlier this year.

Construction spending for hospitals is currently up 14% from a year earlier; spending for nursing homes and other residential facilities is up 6%; and spending for medical buildings is up 1%.

Project starts trends reported by Reed Construction Data signal that the boom in hospital construction is set to end soon (without declining) while a boom in residential care facilities is ahead.

Hospital starts are only 4% higher than a year ago, and, while the value of starts is projected to rise slightly faster in the next two years, it will barely stay ahead of project cost inflation. The 60% surge in starts in the last two years was fueled by rapidly rising employment and a ramp-up in public subsidies to hospitals to cover healthcare costs for the uninsured. In both cases, the growth momentum is ebbing but no cutback is expected.

Nursing home starts, thanks to a big summer surge, are up 59% through September compared to the same period in 2006. While the aging population causes rising room demand in nursing homes and assisted living facilities, the current building boom results from consolidation and privatization within the industry. Facility managers are upgrading and expanding to be better positioned to take advantage of market expansion from both demographics and possible changes in federal healthcare funding.

Four large states account for one-third of healthcare starts in 2007: California, Florida, Texas, and Illinois. Spending in some fast-growing states is lagging: Nevada, Utah, and Idaho account for only 2.5% of U.S. healthcare construction spending.

         
 

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