Kansas City is in the midst of an aggressive expansion of capital investment in medical office space that is consistent with national activity. A variety of factors drive these developments, including patients’ expectations for medical care, a change in how large-scale healthcare operators view their networks and the growth of specialty practitioners. The evolution of medical space created by these forces leads to an entirely new development approach.
Suzanne Dimmel, Cushman & Wakefield
The most obvious evidence of this change in the Kansas City market is located along the Interstate 435 corridor between State Line Road and Metcalf Avenue. Every major healthcare operator in the metro area either has an established presence there, is in the midst of an expansion project, or both. Within that area, the new medical office building for St. Luke’s Health System at Mission Farms was completed in the second half of 2016. Further west, the 76,000-square-foot Quad Six medical office building, located at 6650 W. 110th St., delivered in June of this year.
To the south, at 159th Street and Antioch Road, the first phase of the BluHawk project recently delivered for Shawnee Mission Health – Overland Park. The project includes a 75,000-square-foot medical office building, along with a separate emergency room and imaging center. The University of Kansas Health System’s Overland Park campus is also undergoing a 123,000-square-foot expansion that is scheduled for completion in early 2018.
Patient expectations
Demand for medical space is driven in part by patient expectations. The classic idea of a major medical campus with large, decades-old buildings is no longer appealing to a large segment of the population. People seeking medical care today look for convenience and specialized attention, along with the comforts of modern innovation.
R.J. Trowbridge, Cushman & Wakefield
Cost management also drives the evolution of medical space, particularly as insurance providers and patients recognize that, for many treatments, urgent care centers are far more cost- effective than traditional emergency rooms.
These factors have helped drive an unprecedented boom in urgent care centers in the past 10 years. In 2008, the Urgent Care Association of America (UCAOA) began tracking the growth in the number of centers around the country — a task made difficult by the lack of a single industry certification. However, UCAOA estimated that approximately 300 urgent care centers were added each year by the end of the last decade, making that number more like 600 centers per year in this decade.
Kansas City certainly felt the effects of the growth in urgent care centers as HCA, St. Luke’s and Shawnee Mission Health all aggressively established urgent care locations throughout the metro area. Those three healthcare systems now operate 22 urgent care centers in Kansas City, and other providers, such as Mosaic, have locations as well. Traditional hospitals are rapidly trying to meet the demand for more immediate and convenient access to medical services.
Although urgent care centers have proven to be a profitable investment for hospitals, additional incentives also motivate traditional healthcare systems to invest in them. As fewer patients look to major medical centers to begin treatment, it becomes imperative to engage them where they feel most comfortable. While the large-scale, macro-hospital is not the preferred destination for most patients, many conditions and treatments require visits and stays at those facilities. Healthcare systems are optimistic that patients who initiate treatment at an urgent care center are likely to continue treatment within that network.
Specialty practices expand
Another factor driving expansion in the medical office market is the increase in specialization. As this trend continues, it will create demand for additional space. Although specialized practices may not be tied directly to major hospitals, they will play a major role in determining where patients go for additional healthcare needs.
Years ago, it was conceivable that a nice office building with extra sinks and some exam rooms was sufficient for specialists, but that is no longer the case. Ambulatory surgery centers, outpatient treatment and recovery and high-end technical equipment have become standard features of the specialized healthcare world. To ensure the right specialists are near their facilities, hospitals are providing investment support for expanding specialists of all backgrounds. This support often is realized in the form of best-in-class medical office development.
The rapid expansion already underway along Interstate 435 is consistent with national trends and is supported by multiple factors. As patients begin to seek treatment in convenient, non-traditional hospital settings, major healthcare providers have begun investing in new facilities such as urgent care centers and new, emerging micro-hospitals. These facilities have proven viable and have become increasingly vital to healthcare systems’ ability to attract patients.
The other factor driving increased medical office development is the growth of specialized practices, which will continue as healthcare innovations improve and hospital systems look for specialty practitioners as a means of introducing patients to their wider networks.
— By Suzanne Dimmel, CCIM, Director, Cushman & Wakefield, and R.J. Trowbridge, Senior Associate. This article first appeared in the July 2017 issue of Heartland Real Estate Business magazine.