Much is to be expected out of real estate in 2024, at least in the healthcare marketplace. So says JLL in its 2024 Healthcare Real Estate Outlook . The healthcare footprint is actually one of five determining trends the firm has pinned to the year now unfolding. Also on the list are so-called structural imbalances in the pipeline of talent; the ongoing trend of consolidation; new entrants to the field, such as tech and private equity firms and their acceleration of the shift to more outpatient services; and finally, but not surprisingly, the advancement of artificial intelligence (AI).
Toward ‘Organizational Fitness’
Health systems and care providers are turning more than ever to the strategy of leveraging their real estate to alleviate tight margins. “Increasingly,” says JLL, “that will include scrutinizing their internal real estate function and organization in addition to the more traditional emphasis on the operating costs of the owned and leased properties.”
To reap the benefits of that leverage, a more synergistic strategy is developing. This includes the adoption of technology and tapping into the expertise of “external service partners” in order to “harness the full value of both the real estate and facilities department and the operating performance of locations.”
A word here about those above-mentioned margins. JLL cites research from management consultant Kaufman Hall that points to negative median hospital margins between January 2022 and February 2023. In fact, half of the health systems still operate at a loss, “despite deceleration in wage growth and inflation.” While margins are positive overall, they remain well below 2021 levels.
Wages and Workers
The good news here is that wage pressures are easing in the post-pandemic healthcare marketplace. In fact, wage growth should slip from 2023’s 6.3% (year-over-year) to 5.1% this year.
The not so good prognosis is for the worker shortage to continue. The imbalance comes in a slight deceleration in job openings against a quit rate that has held steady since 2021, with about 2.5% of healthcare workers leaving positions on a monthly basis.
“Unless significant changes are made,” says the report, “the deficit of healthcare workers will only worsen, which could cause delays in patient care [and] continued burnout among workers.” It will also slow the roll out of new healthcare facilities.
Here too, real estate utilization can lend a hand. The creation of rejuvenation spaces for long-shift workers and a clearer understanding of how healthcare workers interact with their space (by the use of utilization tracking) can help reduce that burnout.
Come Together: The Consolidation Factor
The consolidation of independent hospitals and small systems apparently cooled a bit in the face of the uncertain capital markets environment. Kaufman Hall indicates that the number of transactions has slowly declined since a 30-deal high in 2015. It hit bottom in 2021 when only seven deals were struck. The subsequent two years saw slight upticks (10 in ’22 and 18 last year) but remained well below the previous high.
But that upward momentum of deals is expected to continue now as rates stabilize. “Mergers will be focused on adding components to their business, such as a hospital system expanding into freestanding imaging or retail-focused locations,” according to the report.
From In to Out
Technology companies, retail stores, private equity and for-profit operators continue to make inroads into the healthcare marketplace, bringing with them a more holistic approach to treatment and a greater emphasis on out-patient services. These include adult-care facilities and remote patience monitoring.
Amazon’s 2022 acquisition of One Medical in a $3.9-billion, all-cash deal is a bellwether for the direction of the sector. As the monster e-tailer explained in a press statement at the time, “One Medical combines in-person care in inviting offices across the country with digital health and virtual care services, making it easier for patients to schedule appointments, renew prescriptions, access up-to-date health records and advance health outcomes.”
JLL adds: “The service is intended to use technology to make care easier and more convenient through an app, telemedicine and retail-like locations.”
And Speaking of Tech . . .
“In 2023, healthcare recognized the potential for AI to affect network planning, operations, cost management and patient care,” reports JLL. “In 2024, health systems, providers and adjacent healthcare services will increasingly use AI to assist with decision making to improve efficiency and quality in care delivery and in facilities management and real estate planning.”
The report goes beyond calling AI a tool. In fact, it refers to the application as a partner, “freeing up clinicians and administrators to focus on the parts of their jobs that only humans can do.” The timing couldn’t be better in light of the “rapid growth of the 75+ population,” especially while staffing shortages persist.
The technology already exists in certain patient-facing platforms, the report states, including diagnostics and remote patient monitoring. Incorporating facilities staff input to the development process is sure to add buy-in.
AI can also impact real estate. Using the technology to help providers understand how and where their time is spent can result in better space utilization.
But beware. “Adoption of AI in healthcare is going to be cautious and slower than in other sectors, given safety and regulatory concerns,” warns JLL.
That said, “In 2024, leading healthcare systems will implement AI to improve healthcare-facilities planning and efficiency, knowing that the upfront investment will pay off.”
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