San Diego Taking Initiative to Address Current and Future Challenges in Providing Healthcare Facilities

San Diego Taking Initiative to Address Current and Future Challenges in Providing Healthcare Facilities

According to panelists at a recent CREW San Diego luncheon this week, healthcare providers are seeking to expand, remodel and re-purpose their facilities to better serve a growing demand based on changing demographics and changing service models. The evolution of consumer-driven healthcare services is also driving up demand for real estate in the healthcare market.

Of particular concern locally, says Mila Volkova, a director at Ware Malcomb specializing in healthcare design, is the availability of skilled nursing facilities and behavioral health services. 

Skilled nursing facilities fall under the regulatory purview of California’s Office of Statewide Health Planning and Development, and the agency’s regulations can be cumbersome enough to substantially slow, or discourage, development of these facilities. This challenge has left California undersupplied with skilled nursing facilities at a time when, as moderator Tracy Morran of Ware Malcomb pointed out, San Diego’s biggest growing population is its elderly.

“Other states are building these

[skilled nursing facilities]

like there’s no tomorrow,” Volkova added.

Behavioral health facilities face a different challenge. While the governing regulations may be easier to navigate, retail and office landlords, as well as the general public, may push back at the idea of having such services housed in their building or neighborhood.

The panelists debunked myths about behavioral health services, though, with Kellie Hill, senior associate at JLL’s Healthcare Practice Group, pointing out that these facilities are well suited for all kinds of different real estate and communities. Volkova added that most people who need behavioral health services are under 40 years old, and many are simply seeking help for the stress they encounter in their daily lives.  

Gregg Zoll, vice president of facilities management and development for Sharp Healthcare, said that when Sharp opened its behavioral health outpatient support services facility, its providers saw 13 people in the first hour. “The demand is there,” he said.

The healthcare industry is responding to other demands as well. Medical providers are moving into retail centers and even large office campuses to increase access to medical services for more people, says Hill.

Zoll agreed, mentioning that Sharp may integrate a facility in the planned office campus at Horton Plaza.

While opening up new avenues, these unconventional spaces provide challenges for both the building owners and the tenants. Hill said landlords must realize that the decision-making process at healthcare institutions will often take longer than they are used to with other tenants. Also, healthcare tenants may have special requirements for water, sewer and HVAC systems, and zoning at the property must accommodate the use.

Developers and landlords have been bullish about medical office buildings, despite these challenges, and have been purchasing them at high prices. This has created a challenge of its own for medical providers. “Reimbursements for medical groups are declining, but rents are going up,” Zoll said.

Demand continues to outpace supply for space, and Hill pointed out that the average medical building in San Diego is 30 years old.

Morran said that investors aren’t interested in renovating these spaces because of the high costs. For new construction, Zoll said that governments need to allow for medical facility development. Volkova agreed, adding that the developing entity needs to “make the jurisdiction a partner” and sometimes engage the surrounding community from the outset.

To address San Diego’s growing demand for healthcare facilities, Sharp Healthcare is rolling out a $1.2 billion master plan over the next five years. In addition to many improvements, a $20 million investment into behavioral health services and new planned developments, Zoll outlined investments planned from other large medical groups as well.

About CREW San Diego

Founded in 1983, CREW San Diego is one of over 70 international chapters strategically expanding the CREW Network globally and locally. Comprised of chapters spanning the U.S., Canada and, most recently, Europe, CREW’s membership boasts over 11,000 commercial real estate professionals throughout the world. San Diego’s membership footprint includes developers, architects, general contractors, brokers, construction managers, life science, R&D, engineers and project managers. While 75 percent of CREW San Diego’s membership is reserved for those directly involved in development or tenant improvement projects, the remaining 25 percent of memberships are allocated to associates and affiliates, which encompass Emerging Leaders and professional service/product providers imperative to the successful growth of local commercial real estate markets. For more information, please visit www.crewsandiego.org.