HEALTHCARE AEC GIANTS: Hospital and medical office construction facing a slow but steady recovery

Construction of hospitals and medical offices is expected to shake off its lethargy in 2015 and recover modestly over the next several years, as healthcare systems vie for patients who want the latest and most convenient services and technologies.

Hospital construction revenue should grow by 3.8% this year, to $20.3 billion, according to market research firm IBISWorld. Renovation and expansion projects will account for about 73% of total healthcare-related construction.

TOP HEALTHCARE SECTOR ARCHITECTURE FIRMS

2014 Healthcare Revenue ($)
1. HDR $198,699,134
2. Stantec $144,447,155
3. Perkins+Will $104,690,000
4. HKS $103,811,878
5. CannonDesign $95,000,000

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TOP HEALTHCARE SECTOR ENGINEERING FIRMS

2014 Healthcare Revenue ($)
1. AECOM $458,485,000
2. Jacobs $93,920,000
3. Burns & McDonnell $42,896,090
4. KPFF Consulting Engineers $37,500,000
5. Smith Seckman Reid $35,847,890

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TOP HEALTHCARE SECTOR CONSTRUCTION FIRMS

2014 Healthcare Revenue ($)
1. Turner Construction $2,109,854,708
2. McCarthy Holdings $1,181,270,640
3. Skanska USA $1,070,841,424
4. Brasfield & Gorrie $995,112,893
5. JE Dunn Construction $751,273,218

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HEALTHCARE GIANTS SPONSORED BY:

In Florida, where healthcare construction is up 20% from 2010, DPR Construction recently started on the 33,000-sf Gloria Drummond Physical Rehabilitation Institute for Boca Raton Regional Hospital. Working with architect HKS, the contractor is renovating existing therapy spaces, upgrading exterior features, and adding an aquatic therapy center.

In May, Akron (Ohio) Children’s Hospital opened its $180 million Kay Jewelers Pavilion, a seven-story, 368,735-sf addition that includes a 39-bed expanded emergency department, a neonatal ICU with 75 private rooms, and a new outpatient center and special delivery unit for high-risk newborns.

Patients’ families and staff helped design the pediatric hospital. “Project teams addressed such issues as minimizing walking for patient families, doctors, and nurses, ensuring efficient movement of supplies in and out of operating rooms, and providing a calm environment that promotes privacy,” says Jeff Stouffer, AIA, ACHA, EVP and Healthcare Group Director for HKS, the project’s designer.

Medical office building starts should also experience an uptick this year, following a period when MOB construction dropped to 3.7 million sf in the first half of 2014, from 7.7 million sf in the first half of 2009, according to Colliers International.

“Strong demand for modern, flexible space will spur development of new medical office buildings concentrated near dominant hospitals and health systems and targeted population groups,” Colliers predicts. The research firm says developers are likely to favor new MOB construction over retrofits of older properties.

The healthcare facilities sector continues to adjust construction and renovation plans to meet consumer demands for flexible services. Clay Seckman, PE, Senior Principal with engineering firm Smith Seckman Reid (SSR), sees a migration of healthcare services to lower-cost outpatient settings, “where patients receive quality diagnostic and treatment without the ‘institutional’ feel.”

Colliers notes that pharmacies and supermarkets are elbowing their way into the healthcare arena, offering such services as vaccinations and treatment for common, non-acute illnesses. Kaiser Permanente, California’s largest HMO, recently entered into a partnership with Target to open clinics inside several of the retailer’s stores in Southern California. Minute Clinics, the leader in the retail clinic market, with more than 900 locations, intends to open 600 more through 2017.

WIDENING THE CLIENT BASE

Hospital systems must now figure out how to keep pace with growing demand from two sources: first, the 32 million Americans who have healthcare coverage under the Affordable Care Act; and, second, the seniors cohort, which is expected to swell by two-thirds through 2035.

To meet demand, hospitals are adding beds. Seckman says that increasing inpatient bed capacity was a motivating factor behind SSR’s $500 million, two-million-sf campus replacement project at CHI St. Luke’s Health in Houston. An SSR renovation at Lee Memorial Health System in Fort Myers, Fla., reactivated decommissioned beds.

Despite its growth potential, the healthcare sector remains volatile. Twenty hospitals declared bankruptcy last year, in some cases to make their assets more attractive acquisition targets. Colliers thinks this pattern could continue for the next five to seven years, “as weaker systems are unable to compete with larger, more financially sound systems seeking to capture greater market share and influence.”

Some healthcare systems are also closing older hospitals in poorer areas so they can open new facilities in more affluent markets with more insured patients.

Hospitals and other medical facilities are often viewed as engineers of neighborhood economic and social vitality. In San Francisco, construction of the $2 billion, 700,000-sf California Pacific Medical Center is spurring developers and property owners to line up projects near the hospital that, if approved, would result in 2,000 new housing units, a million sf of office space, and hundreds of hotel rooms.

HKS’s Stouffer sees hospitals “becoming catalysts for change in communities, beginning with urban planning, mixed-use design, and improving the patient and family experience.” He believes care will also be moving to the patient’s home, thanks to advances in technology linking the patient to the physician, hospital, or clinic.