Health care construction, which includes hospitals, medical office buildings and special care facilities, such as nursing homes, will continue to be one of the highest performing construction markets for 2010. Even though this market has been, and will continue to be, one of the top performers for the construction industry, total construction put in place is expected to dip another 2 percent in 2010 to a total of $44.8 billion. Since 2000, health care construction has shown an increasing growth trend as a percent of total nonresidential building construction and should reach 13 percent by 2012. Some of this apparent growth is due to a slowdown in other markets. For example, according to Raleigh, N.C.-based FMI Corp.’s third quarter 2009 forecast, lodging construction will drop 35 percent in 2010 and commercial construction is expected to take a 25 percent dip. Throughout 2009, panelists for FMI’s “Nonresidential Construction Index” have been indicating weak, but improving near-term growth for health care construction. As of the fourth quarter of 2009, NRCI panelists are calling for little change, but their longer range outlooks are somewhat bullish for 2010 through 2012.
The health care construction sector will continue to grow due to demographic demand factors as baby boomers enter their golden years, but other changes in the market also will affect the rate of growth. Currently, most of the construction projects in health care involve large, multi-year efforts, so one reason for this market’s relative strength is that projects now being completed were started before the recession got into full swing. Many of those projects have been delayed, cancelled or scaled down. As the economy begins to pick up, some of the delayed projects will resume, but future new construction projects are likely to face budget shortages due to difficulties in obtaining funds. That could mean that health care systems will focus on renovation projects and building more outpatient clinics.
Before the market for health care construction begins to recover in 2011, the market will face a lot of questions arising from the current debate about national health care. Whatever the outcome of the pending legislation, there is an expectation of change, and that may further delay any plans on the drawing boards.
The health care system will be under pressure to reduce costs or at least keep costs from climbing as fast as they have been, whatever the outcome of the health care debate in Congress. A recent report by the Congressional Budget Office projects that health care costs will increase to 31 percent of GDP by 2035 at current rates of growth, which would mean a doubling of health care costs. That rate of increase is untenable, and both government and consumers will have to address this issue before it bankrupts the country. That might mean a growing trend in consumers seeking primary care at retail store clinics and ambulatory care centers or more people going without. If so, in the future it is conceivable that some part of the health construction market will merge with retail and commercial construction.
One of the trends in health care delivery mirrors a growing trend in construction delivery methods. In health care, there is a movement toward consolidating services into health care villages where patients can go to one central area to visit several specialists as needed. These villages may be a group of doctors working in one hospital system or independently, but the effect is a movement toward a more holistic approach to the patient.
In construction delivery, health care projects are more likely to be headed up by construction management firms or bid to a selected group of contractors. Due to the complexity of building and renovating hospitals, there now is a movement toward greater integration and collaboration resulting in more interest in integrated project delivery where architects, engineers, construction managers and contractors work together up front and throughout the project. As the market calls for greater use of technology, reduced costs for delivery of both health care and health care construction, it also wants to be greener. Ultimately, the challenge is to combine all of these aspects into one project or construction program. Owners of the future will not simply accept one or the other. They want it all.
John Hughes, vice president of FMI Corp., Raleigh, N.C., works with national manufacturers of construction products and equipment, distributors, retailers and industry suppliers in the areas of strategy, channel assessment, customer development, organizational development and training, and market research. He can be reached at jhughes@fminet.com or (919) 785-9224.