“There's been a huge push to expand care of outpatient treatment in emergency care, diagnostics, dialysis groups and we're seeing the decline of private practice,” he says. “Healthcare systems are acquiring small practice groups and the physicians in turn become employees of these systems. Another trend we're seeing is that people want care delivered into the communities.

“In the past 18 months,” says Dallas-based Perkins, “we've seen more than 30 free-standing emergency rooms come on line in the Dallas/Fort Worth area. This is happening everywhere—and we're talking about full emergency care.”

Perkins also sees a lot of uncertainty in the medical community stemming from the ACA. “Many doctors are in flux. They are not sure if their practice will be acquired, and they are worried about reimbursements and income. They are delaying a lot of business decisions based in this uncertainty. Many are taking early retirement because they are tired of the red tape. At age 50 or 60, they just don't want to deal with it anymore,” he says. “The younger physicians' desire is to have a more normalized lifestyle—they want the 9 to 5 hours rather than the older generation which worked longer hours. But costs have risen. They have student loans and the cost of real estate has gone up. As a result they are becoming employees of the larger practices of the healthcare system.”

This means the real estate is now carrying stronger credit tenants. “It's healthcare related credit and it makes the building more valuable,” says Perkins.

The retailing of healthcare is also a trend we will see more of in the future. “With direct to consumer, there are more choices than ever. The old model is going away,” he relates. “Consumers want choices near their homes, school or work. An example of this would be a nurse practitioner or physician's assistant in a Walgreens. There are just not enough doctors to go around.”

Perkins says financially weak systems will close or be acquired, but on the whole, more of the same can be expected. “The ACA is here to stay, though there may be some changes. We'll have to see how it plays out in the Republican-controlled Congress.”

In general, “the new focus on economics is on delivery of care and technology,” says Paula Crowley, CEO of Anchor Health Properties. “But many of the changes we've seen under the ACA would have happened independent of that. The ACA just sped things up.”

Crowley says the new model is for cost-effective outpatient settings. “Think less expensive, more efficiency,” she says. “Reimbursement has forced the hand on creating space that is more efficient and flexible and the ACA accelerated this process of getting the care out of the hospitals. Patients are having more input now; they are taking more control. We're seeing more care at home, more telemedicine. The more we are empowered, the more things will change and technology is a big part of that.”

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Fewer large hospitals are also on the horizon, according to Crowley, with a great majority of care being pushed out into the community. “That's good from a provider/patient model,” she says.

And as for new hospitals, they're being built in a much more strategic manner. “Hospitals need to understand their market instead of unilaterally opening buildings. Who is your market? What are their issues? They need to have the ability to change over time as technology changes. The solution of throwing up a building doesn't work anymore.”

Crowley says the ACA is good for healthcare real estate. “It creates change and change creates opportunities. If you're nimble and read the tea leaves, you can respond and provide what is needed. Things are happening so quickly in healthcare real estate. The change in payment and reimbursement forces the real estate industry to think differently about the product.

“Healthcare consumers are just like any other consumer; they want retail access, convenience and customer service. It makes sense to have a pediatrician next to a pediatric orthodontist so you have those services in one visit. It's the retailing of healthcare. You need to know your market and ask where do I want to be? How do I brand myself? Be strategic. There is an art to it. Healthcare pushes the envelope even further. Why shouldn't you be able to have many services done in one place in one day? It takes thinking, knowing the market and putting in the right services.”

Crowley believes the urgent care market is oversaturated at present. “Those in the best locations with the best services will make it long term. Many will not.” She sums up healthcare real estate this way: “Just building buildings is not sufficient. It may have been 15 years ago, but there is so much competition now. No one can afford to do things in a second-class way. You don't have a second chance. That's retail and it makes for a better product.”

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“With the ACA, we're definitely going to see more and more doctors employed by larger groups,” says Kate Morris, first VP for CBRE, Healthcare Services Group. “Just 30% of physicians are on their own now. There is so much documentation required, doctors are just throwing up their hands due to the larger requirements. The 1,500-square-foot office doesn't make sense anymore. We're seeing a minimum space of 3,000 to 6,000 square feet, so doctors are teaming up with hospital groups,” she says.

Morris says under the new requirements, doctors are now paid to keep patients out of the office. This all ties in to quality of care. And due to the surge in ambulatory settings, hospitals are seeing more open beds. “Hospitals are having to repurpose space,” she explains. “Some of it is going to behavioral health groups, some to skilled nursing—we're not seeing much new hospital construction.”

The retailing of healthcare is stronger than ever, according to Morris. “I just saw a vacant Fresh and Easy become a primary care space in a center where there is also a health club and a health food store. We're not seeing specialists do this because they most often need hospital access. But for primary care doctors, it works. Consumers see the convenience. This is where branding and signage become important.”

Like many healthcare real estate experts, Morris believes the urgent care market is oversaturated. “Big hospital affiliated groups will survive,” she states. “If an urgent care stays within these groups there are definite advantages.”

Also on the decline, Morris believes, is skilled nursing—due to the increase in home healthcare and the technology it continues to bring to the table.

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Richard Taylor, east region managing director for JLL Healthcare Solutions, believes at a higher level, it's all about driving the cost of care down. “But the challenge is that hospital systems are at a transition point; they are still set up according to the traditional model with the infrastructure and real estate that are traditional,” says Taylor. “Meanwhile the delivery of care is being driven into the field or home; services are being taken into the marketplace—freestanding emergency rooms, ambulatory surgery centers.

“Hospitals need to focus on value and look for efficiencies, how they deliver all services. Is it value-based care? They need to look at shared services and ask: what can we adopt from a corporation model to deliver more efficiently?”

Taylor says there are many creative relationships within the healthcare retail model. “Hospitals are wondering if they should partner with a Walgreens or develop their own model. There are ramifications to consider.

“Home healthcare is also making strides,” says Taylor. “With the use of technology it's a more forward-thinking system from acute care into the home. It's going to come down to what is acceptable to the patient.”

Overall, Taylor says, the ACA has forced a more aggressive look due to value-based care. “Hospital CFOs weren't thinking about their real estate platform six to 12 months ago,” he states. “Now there is an ongoing discussion about the size of the hospital system—it's more of a corporate focus.”

Lorie Damon, managing director for DTZ, says the ACA has certainly caused a shift in the healthcare real estate landscape. She cites expanded access, improved quality, documentation and the move to ambulatory settings.

“Hospitals run 24 hours per day and are the most expensive asset in health care,” says Damon. “The utilization of beds is down and declining, and many hospitals have aging infrastructure. Newly constructed hospitals are being built to a much leaner standard.

“The retailing of care is also an upward trend. The visit to your local Walmart for a flu shot or visit to the nurse practitioner is very convenient. We see some of these partnerships forming, but we haven't seen the ways in which the changes will manifest in the big picture. The impacts aren't uniform.”

Damon also says there is uncertainty in the 22 states where Medicaid has not been expanded. “The impacts are different—preventative care, people may not seek care or go to the emergency room. There's been no study on the implications in those markets.”

MOBs By the Numbers

According to a recent report on Forum sister publication GlobeSt.com, the vacancy decline in medical office buildings since the recession peaked hasn't been as great as that of conventional office properties, but then MOB occupancies didn't fall as far and therefore had a shorter and more gradual climb back up. As it is, the sector's vacancy rate now averages 10.9%, the lowest since the recession, according to Colliers International. However, it tends to be higher in older properties.

“Relative to both CBD and suburban traditional office, MOBs proved to be a tighter and more stable property type during the recession and recovery,” according to the Seattle-based firm's 2015 Medical Office Outlook Report. Among the factors contributing to stability are long lease terms along with the expense of money and time to make tenant- and specialty-specific improvements to a space. “Such factors often deter tenants from relocating,” the report states.

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The sector's relative stability occurs against the backdrop of what Mary Beth Kuzmanovich, the firm's national director of healthcare services, calls “an enormous transition period” for the healthcare industry itself. She cites the ongoing uncertainty over the effects of the ACA, as well as “advances in technology and the graying of our population.” In the face of this, she says, “the demand for healthcare real estate is rising, especially for the properties that are best suited to meet sector-wide needs for lower-cost and more convenient locations.”

That's leading to the retailization of healthcare real estate, as physicians and providers alike look beyond hospital campuses. “Providers such as One Medical Group are locating in ground-floor and second-floor urban retail spaces in office buildings as well as mixed-use residential buildings for the convenience of their consumer base,” according to the Colliers report.

Other health systems have begun “clustering multiple physicians and medical specialties such as urgent care centers and dialysis clinics in suburban shopping centers convenient for both physicians and consumers,” the report states. Technology, too, is a driver of the movement of medical services out of the hospital and into outpatient and retail settings “as treatments and diagnostics such as digital imaging have become more mobile.”

There's another, more literal aspect of retailization cited in the report, and that's the greater involvement of actual retail stores. “Changes in healthcare are attracting new participants to the space, notably pharmacies and grocery stores offering basic services such as vaccinations and treatment for common, non-acute illnesses,” the report states. Such walk-in clinics can provide convenient care, generally at a lower cost than a traditional doctor's office or urgent care center, as well as transparent pricing.

Further, Colliers notes that some hospital systems have begun partnering with retail clinics to provide low-acuity services to existing patients at a lower cost, with the MOB report citing Texas Health Resources' mid-2014 announcement of an alliance with multiple DFW-area CVS Minute Clinics. “Minute Clinics is the current leader in the retail clinic market with over 900 locations and 600 more planned through 2017,” the report states. Kaiser Permanente, California's largest HMO, also recently announced a partnership with Target to open clinics in several of its Southern California stores “with plans to expand into other states in which Kaiser operates.”