Vital signs strong for healthcare construction

August 11, 2010

The last three years have been good ones for the health sector. This year started out somewhat slowly, but construction activity picked up later in the year, and there are plenty of reasons to believe that growth rates will continue through the decade.

Total construction spending in the healthcare subsector (including additions and renovation work) was $12.38 billion through the first seven months of 2002, up 12.0% compared to the January-July 2001 total of $11.05 billion (see figure).

This is in sharp contrast to the overall trend in nonresidential construction spending this year; through July, total spending in the sector had declined at an 8.3% annualized rate — dragged down, of course, by the steep double-digit losses recorded by both the commercial and industrial subsectors.

Healthcare is coming off some surprisingly lean years during the past half decade, when consolidation in the industry and cost-containment initiatives by healthcare providers held down construction activity.

Total spending for healthcare facilities construction was just over $19 billion in 2001, an increase of a modest 3.2% from the 2000 total.

But long-term demographic trends remain unambiguously positive for the healthcare sector. The increasing need for healthcare services due to the aging of the population and the explosion in medical technology and treatment procedures, which has resulted in growing public demand for additional, usually expensive services, are social and economic forces that will continue to propel healthcare construction for years to come.

As a result, private construction investment dollars are being funneled to healthcare at a generous rate, since demand for medical services is considered to be less discretionary than that for investments in office buildings, hotels, or manufacturing facilities. Privately funded work represents approximately 77% of the total healthcare construction market. Spending in the subsector increased by a modest 4.7% last year, but growth had accelerated to a much healthier 8.8% annualized rate through July of this year.

And with heightened public health concerns related to biological, chemical, and nuclear terrorism, West Nile virus, and who knows what else, the trend is toward significantly increased levels of funding for the expansion and renovation of public health facilities.

After actually showing a decline of 2.0% between 2000 and 2001, construction dollars going toward the construction or upgrading of public health facilities had grown at a whopping 24.4% annualized rate through the first seven months of 2002.

Commercial, industrial & institutional (CII) construction spending
(Billions of current dollars)


Spending in July 2002 Percent change from July 2001 Spending in year-to-date 2002 Percent change from year-to-date 2001 2001 total spending Annual percent change 2001 2002 (f) 2003 (f)
Source: U.S. Department of Commerce; forecast (f): Reed Business Economics

CII total $23.93 -10.3% $157.63 -8.3% $298.06 0.4% -4.1% 8.7%
Commercial 8.71 -22.6 61.89 -17.9 126.74 -4.2 -12.8 5.2
Office 3.19 -27.1 23.02 -28.7 52.02 -6.4 -22.2 7.1
Retail 4.67 -14.3 32.40 -6.1 60.30 -0.1 -3.1 3.5
Hotel/motel 0.85 -33.7 6.47 -25.3 14.42 -11.5 -18.8 6.6
Industrial 1.33 -48.9 9.98 -44.3 29.05 -8.7 -24.1 11.3
Institutional 13.89 7.1 85.76 9.0 142.28 7.2 7.8 10.9
Healthcare 1.86 17.1 12.38 12.0 19.17 3.2 5.1 4.3
Education 7.44 9.2 42.75 15.3 68.38 11.8 13.3 17.5
Religious 0.69 -6.3 4.76 2.9 8.31 3.6 4.8 5.5
Other private bldgs. 0.68 -13.1 4.91 -11.3 9.26 -10.4 1.1 3.6
Other public bldgs. 3.22 5.4 20.96 3.0 37.16 7.4 1.6 3.9
Multifamily 2.85 8.5 19.59 12.7 30.69 8.6 11.7 8.3

         
 

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