Cross says we'll see BTS continue in the healthcare sector.

SEATTLE-Along with putting an additional 32 million Americans into the ranks of the insured, the Affordable Care Act is also accelerating consolidation among healthcare providers and insurers. That in turn will be a major driver of the organizations’ real estate decisions for the foreseeable future, Colliers International says in its ever first-ever report on medical office trends. GlobeSt.com saw the report exclusively in advance of its publication Friday.

It’s the regulatory requirements of Obamacare, more so than other possible drivers, that are spurring the consolidation trend “in terms of cost containment and economies of scale,” Andrea Cross, office research manager at Colliers and the report’s lead author, tells GlobeSt.com. Further, she says, “Younger physicians coming out of medical school are more willing to become hospital employees than their predecessors were,” a willingness that dovetails with the shift toward accountable care organizations that offer financial incentives for lower-cost outcomes.

That cultural shift among doctors is occurring amid a different environment than those predecessors would have known, thanks to the move toward electronic health records and the technology required to support EHR. “So there may be different concerns than there were in previous generations,” says Cross.

In terms of real estate requirements, she says, “We’re going to see growth in larger facilities that can accommodate a range of specialties, as well as smaller, outpatient facilities that are located nearer the patients.” Among other effects, that is leading healthcare providers to locate in facilities that wouldn’t be considered traditional medical office buildings, such as shopping centers. “That’s driven by the desire to be close to patients, to be accessible and capture a lot of the growth that is happening in terms of the insured population.”

By the same token, retail landlords of a decade ago would not have considered healthcare providers to be traditional tenants. Competition from online sales and smaller space requirements among many brick-and-mortar stores has made shopping center owners more amenable to lease space to doctors. “If the demand was there for 20,000- to 60,000-square-foot big box retailers, maybe they wouldn’t be quite so agreeable to it,” Cross says. “That said, they’re certainly happy to have” the demand from healthcare providers.

This move toward repurposing nontraditional space is among the factors that has kept development in check, at least for speculative MOB projects. Although the report notes that the sector accounts for 25% of all US office space now under construction, it’s a smaller tally than we saw a few years ago. About 1.25 million square feet of new space has been delivered so far this year, and another 2.4 million square foot is in the pipeline. That compares with the 8.9 million square feet that came on line in the first half of 2009.

Most of what is under development now is build-to-suit, and Colliers expects this trend to continue. “The preference of large medical systems for customizing their facilities as well as the risk of speculative development amid uncertainty regarding the future of the healthcare industry will likely support this trend going forward,” according to the report.

As the parameters of what constitutes medical office space have broadened, investors have kept pace. “As in the traditional office market, we’ve seen a comeback in the medical office investment market over the past couple of years,” says Cross. “There’s a lot of capital out there, from a variety of different sources, that’s interested in the medical space.” The report notes that REITs, private equity and institutional funds have alike have been “aggressively” raising capital for opportunities in the sector. Colliers’ report is now live on the firm’s website.