PICOR Connect | Trends in Commercial Real Estate

Tucson's Dynamic Medical Office Market

Posted on Wed, May 09, 2012

The Tucson medical space market has been dynamic through the economic recession, perhaps more so than any other sector of the commercial real estate market. Recent activity has shifted from the heady days of 2003 through 2008, when the purchase of medical office buildings was all the rage, to the currently more conservative world of leasing office space.  To be sure, all activity, sale or lease, has occurred at significantly lower price levels, with prices and rents down 10 to 15% in medical properties,  albeit significantly less than declines in the market for general office space. 

21st CENTURY HEALTHCARE DELIVERY

Economic pressure is one of the forces remaking the practice of medicine. The medical community is highly attuned to the present and future implications of healthcare reform at the federal level.  Large healthcare systems are re-thinking the nature, shape and organization of their delivery systems from top to bottom.  They are forming new relationships and alliances and adopting cutting edge technology.  Individual medical practices are under the same pressure to identify efficiencies and economies and to ally with related health care providers.  Large private and public medical groups continue to grow in size and influence.  Continuous progress at advanced medical research facilities, coupled with a technology explosion in research labs permitting worldwide scientific collaboration, are additional forces evident in the healthcare community.  The developers and owners of real estate serving the industry must become informed and knowledgeable about the pending revolution in healthcare delivery in order to respond to new realities and processes.

In the recent past, healthcare practices were physically disassociating from healthcare campuses and pursuing ownership opportunities in reasonable proximity to the “mother ship.” They were frequently locating in small freestanding buildings intended for a single practice.  The nascent pursuit of efficiency and economy will cause a re-think of the importance of location as family medicine practitioners become the gatekeepers of a system that then moves the patient on to specialty care and treatment. Aftercare is an increasingly important aspect of the medical insurance reimbursement formula.    Systems that monitor post-procedure care and reduce re-admissions to acute care will reap financial rewards.

Women’s healthcare and pediatric medicine are examples of practices that will explore co-location and shared management systems from electronic medical records to 24/7 utilization of facilities.  Why should a non-acute healthcare delivery system shut down for 16 hours a day?  Expanded hours will improve efficiencies, improve return on investment in physical assets and expand availability of services to the public.

The Accountable Care Organization (ACO) is a system of member healthcare providers from acute care hospital to the individual practice and all health delivery personnel formed to create efficiency, control cost, improve patient outcomes and improve the bottom line.  These organizations are being established around the country, spurred by federal healthcare reform and prodded by decreasing reimbursements from private and public insurance groups.

It has to be said that technology, especially in the management of patient records, is the game changer that initiated the re-shaping of the future of healthcare delivery.  With one electronic medical record (EMR) of a patient, ONE chart, secure and shared by all member providers in an ACO, all systems accelerate, from registration to diagnosis to treatment, discharge, after care and post care monitoring. The aim is to do it all once, do it right the first time with everyone on the same page for the benefit and successful treatment of the patient.  Patient time is not wasted, travel time is not wasted. Errors, possible and dangerous, are all reduced.  Coordination, collaboration, communication are all improved and contribute to the welfare of the patient.  These factors result in an improved financial reward for the provider. This progress comes, however, at a very significant investment in new hardware, software and training.

THE MEDICAL BUILT ENVIRONMENT

Medical real estate is changing in response to the forces delineated above.  Practitioners are joining in larger expanded practices.  They are becoming employees of larger systems because the costs of operating individually are prohibitive.  Specialists have historically operated when and where they wish.  Even this community is responding to the changing landscape and is forced to recognize the imperatives of economy and improved patient outcomes in the world of insurance reimbursement.

We are beginning to see the impact on real estate in Tucson.  Practice size is growing. Practices are looking at the benefits of co-locating.  Sole practitioners are declining in number due to both the crushing financial burden of operating a practice and declining reimbursements.  Conversion to electronic medical records is beyond the means of most sole practices.

At the same time that many related medical practices are exploring and considering the changing environment and desirability of co-location, there is a growing trend of retail medicine in distributed settings like strip and shopping centers.  Urgent care facilities are increasingly absorbing some of the tidal wave of patients that have swamped hospital emergency departments.  Prompt care for non-acute problems results in short visits and keeps people away from hospital environments intended for really sick people and where diseases can be transmitted.

Tucson Medical Center West PavilionThe new West Pavilion at Tucson Medical Center, a 200,000 square foot (sf), four story structure, serves as a timely manifestation of the trends discussed here.  The Tucson Orthopaedic Institute clinical and administration operation will move from its present quarters at 2424 North Wyatt to the 50,000 sf ground floor of the new Pavilion.  The second, third and fourth floors of the building will be dedicated to 24 operating rooms and patient rooms. This arrangement puts the orthopaedic surgeon a brief elevator ride from their office and clinical space to the operating room (OR).  After a procedure, patients are moved from the OR and post op to a room a floor or two above. All activity is controlled and collected in one electronic medical chart. Post-surgical physical therapy, medications, planned after care and follow-up are all detailed and shared by the medical team treating the patient. Surgeon, anesthesiologist, surgical and general nurses, therapists, pharmacists and specialty treatment technicians are coordinated and informed of the patient’s status throughout treatment via the electronic medical record. Patient outcomes improve, hospitals and practitioners improve their finances through reimbursement incentives, and hopefully this type of technological and physical arrangement will begin to have a favorable impact on the costs of healthcare.

Tom Knox PICOR Office BrokerTom Knox's commercial real estate career dates to 1977 where he began as a broker at CB Commercial Real Estate then was promoted to leadership positions including Resident Manager and VP in 1982 through 1990. Thereafter and together with his JV partner, Tom provided real estate services to the Resolution Trust Corporation, the FDIC and The State of Arizona. In 1995, he joined PICOR and is now one of 13 company principals. He specializes exclusively in office, medical and investment properties.

Rick Kleiner PICOR Office BrokerRick Kleiner, MBA, with PICOR since 1995, is a Principal specializing in the sale, leasing and investment of office and medical properties. With special emphasis on the real estate needs of the health care industry, Rick focuses on business solutions for medical practitioners and associated services. In 2011, Rick led the Office Division as Top Producer.  Prior to joining PICOR, Rick served as Vice President of Marketing for Up With People.

Tom Nieman PICOR Tucson office brokerTom Nieman, specializing in commercial real estate since 1977, possesses a diverse background in brokerage, development, and management. He joined PICOR in 1995, focusing on the office, medical and investment markets, becoming a Principal in 2001. He excels in providing the best solutions to the real estate requirements of developers, landlords, tenants and investors. 

 

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First published in TREND Report, May 2012. For subscription information, contact Lucinda Smedley, Publisher.

Photo credits: Inside Tucson Business, Gary Rumack, Lyn Sims

Topics: Tucson, Technology, Commercial real estate, Investment property, Market trends, Office, Medical office