Adopting a real estate strategy in healthcare

Written by Philip Hall, Director and Chairman – Healthcare, Jones Lang LaSalle

At a recent meeting of healthcare property professionals in Paris, I was struck by the common issues faced by European nations. The legislation and funding mechanisms may be different but the pressures facing all countries are similar. For one thing, we are all getting older. Even countries like Ireland, with relatively high numbers of young people, will have to provide for increasing numbers of elderly. This issue is not just confined to the developed western nations; it also applies to countries like China. Property investors understand this and they like the fact that demand is relatively stable and predictable.

It is also clear that countries are struggling to meet the rising cost of health and social care needs. Budgetary constraints mean driving down tariffs and costs and with occupational costs accounting for up to 25 percent of all outgoings, savings here have to be a major plank of any efficiency drive. The better utilisation of buildings, making buildings more energy efficient and disposing of surplus assets can all make valuable contributions. Buildings can also be adapted to create new income streams. However, for maximum effect estate strategy needs to be seen as integral to the business case rather than an afterthought. We are still far from achieving this.

Technology is also impacting on our use of healthcare assets. It is helping to reduce the average stay in hospital and boost day surgery, a trend which opens up opportunities for new investment as well as challenges for established healthcare providers.

There is a growing preference to keep people at home for as long as possible, boosting the demand for domiciliary services and reserving residential care for only the most physically and mentally demanding. Private equity is being increasingly attracted to invest in ‘asset light’ businesses such as domiciliary care which are seen to have considerable growth and consolidation prospects.

But what are the overall implications for property investors? The first is that demographics will underpin a growing market. The second is that cost constraints herald a greater role for the private sector generally. Better use of real estate will play a large part in driving forward efficiency savings and investment in new assets will also be needed to replace redundant stock and to meet rising consumer expectations. Providers with ‘legacy’ assets will face increasingly tough choices. Meanwhile, design needs to keep pace with changes to the way in which services are delivered. We still see too many expensive, over engineered buildings, which give little weight to the flexibility of use in the future. Estate strategy needs to be seen as integral to the operational strategy and not as an appendage.

Scot Latimer, from Jones Lang LaSalle (US), on a strategic healthcare real estate plan:

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