When it comes to healthcare facility construction in Metro Phoenix, business has never been in better shape.
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“There has been an uptick in both on-campus healthcare facility projects as well as off-campus ambulatory clinics and facilities,” says Jaime Northam, vice president of healthcare development for Ryan Companies US. “Most of the health systems in this market have recently announced plans for new hospitals and/or extensive renovation and expansion projects at existing hospital facilities. I would argue that we have never seen this level of activity on both the acute care side and the ambulatory side. It is quite remarkable.”
Contractors are also building hospitals and medical facilities in ways they have never constructed them in the past.
“The utilization of VDC/3D modeling/virtual reality renderings in the design and preconstruction phase of the project has become even more essential as hospitals refine their approach to patient care while also supporting the needs of their care providers and staff,” Northam says. “This modeling tool allows for maximum visualization of a space design by hospital leadership, operations, care providers and staff members. This helps to put the design into practice and anticipate any challenges within the space design before it is built, ultimately allowing care providers to better serve their patients in a safe, effective and comfortable manner.”
But that’s not the only trend Northam is seeing. She also says to watch these trends that are shaping the healthcare sector:
• An increased emphasis on not only patient experience but also on caregiver experience and wellbeing. The retention of caregivers is a huge priority for hospitals and systems.
• The expanded focus on sustainability.
• A significant need for post-acute care facilities, particularly in patient rehabilitation facilities, to transition patients who still need care out of the hospital sooner, opening up much-needed beds for new patients.
• More flexible spaces within the healthcare setting to accommodate changing needs and improve on efficiencies. This includes the ability to adapt to different levels of acuity within the same space.
• More outpatient and behavioral health facilities to address the significant shortage of behavioral health care across all ages and spectrums and keeping patients needing specialized care out of the emergency departments and hospitals.
• The growing trend of hospitals and health systems exploring alternative real estate strategies to fulfill their growth needs in key markets with minimal capital outlay or exposure. This includes shifting their focus from owning their own properties to leasing them instead, doing land leases and/or doing joint venture real estate structures.
“New healthcare facilities are safer, more efficient, welcoming, sustainable and adaptable than they ever have been,” Northam says.
Trends to watch
Here’s what other Metro Phoenix healthcare real estate experts say are the trends to watch when it comes to the healthcare space:
Tyson Breinholt, president and designated broker, Commercial Properties Incorporated: “With the decentralization of the healthcare industry, the Phoenix market has been experiencing a trend of adaptive, non-traditional medical spaces. Spaces are opening where it’s more like a retail outlook. As these providers look to appeal to new patients in areas outside of a traditional hospital/medical center, I believe medical office projects will remain in high demand supporting and strengthening the medical office sector due to the longer lease terms and higher rental rates necessitated by their need for high-quality medical space.”
Derek Contizano, director of operations, SDB Contracting Services: “In general, there has not been much of an appetite for the design-build approach, but with budgets tightened, timeframes shortened and the need for programs not only to be flexible but able to completely change at a moment’s notice, this approach has emerged. Design-build gave SDB and our customers an opportunity to really drill into how these programs function and how they can be improved.”
Robert Cortazzo, Southwest president, Adolfson & Peterson Construction: “We are seeing a drive to pre-construction. We’re seeing a lot of prefab components in healthcare facilities, especially since they’re so focused on delivering them in a shorter period of time. We’re also seeing negative pressure rooms — COVID rooms — being designed and developed in a lot of healthcare facilities. That way, if they have a patient who tests positive for COVID, they can have that patient be in the facility safely.”
Eric Hoffmann, director of preconstruction, SDB Contracting Services: “As most already know, there are many existing challenges within healthcare development and especially in healthcare construction. In the wake of COVID-19, we saw numerous changes in how healthcare programs were being developed. The most significant trend we are seeing is the increasing use of the design-build approach. SDB has been at the forefront of this trend, working closely with our clients to deliver successful projects.”
Rick Murdock, vice president of strategic planning, network development and physician alignment; and Dr. John Neil, chief physician executive and network strategy officer, HonorHealth: “Hospital construction in the Arizona market has tightened in recent months and has included only what is considered essential operations. The current cost of construction exceeds what most operating models can support. Healthcare systems, including HonorHealth, have been impacted by a rapid escalation in materials and supplies and increasing labor costs, complicated by the fact that pricing in healthcare is relatively fixed. Unlike other companies, who can increase their revenue overnight by raising prices, healthcare reimbursements are set for government programs (Medicaid and Medicare), and this leaves only a portion of care which is reimbursed by insurance companies negotiable, and those negotiations usually happen every year or two.”
Mari Lederman, vice president, JLL: “The shift to outpatient care is driving investment opportunities across the healthcare industry, but medical office buildings stand out from the rest. This is because outpatient health visits are growing at a faster rate than inpatient admissions. Outpatient growth is also driving demand for space in medical office buildings. In a healthcare investor survey by JLL, 66% of respondents selected medical office buildings as the biggest investment opportunity in 2023.”
Katie McIntyre, vice president, JLL: “A trend we are seeing is healthcare being provided in a mixed-use setting. It is not uncommon to have healthcare real estate in retail and residential settings. These are popular because they provide convenient and comprehensive destinations for patients. Another focus is the aging population. Healthcare development is catering to the needs of the aging population and we are seeing a lot more rehab facilities, senior living facilities, long-term care and memory care facilities as a result.”
Scott Nordlund, executive vice president and chief strategy and growth officer, Banner Health: “Healthcare facilities are very complex and can be overwhelming for those who do not navigate them daily. Building facilities that are easy for consumers to access and navigate has been a top trend that we have observed, and it is a focus for Banner for all our new builds and expansions. Hospitals are very big and utilize a lot of resources, so environmental considerations are also top of mind for many health systems as we build new locations.”
Craig Passey, Phoenix Healthcare Studio leader, SmithGroup: “Flexibility continues to be at the forefront of design, so as to support evolving care models and/or service lines. Another trend is the pre-fabrication of building components to support accelerated construction schedules, promote improved quality control and offset field labor shortages. Examples include panelization of the building exterior envelope, patient room headwalls, overhead MP&E racks, and in some cases entire rooms such as patient rooms or bathroom pods.”
Larissa Spraker, vice president of strategy and business development, Dignity Health’s Arizona market: “Outside the traditional brick-and mortar-developments, there is momentum around inpatient care at home, but it is still a relatively nascent part of the healthcare industry. Dignity Health at Home is a service that allows for some patients, depending on their diagnosis, to receive the same level of care normally received inside the hospital in the comfort of their own home.”
