Healthcare Real Estate: Transparency and Communication Are Critical in Volatile Materials Market


 

These are unprecedented times in the construction industry and even more-so in healthcare construction. The early days of the pandemic saw construction material costs soar as a record-setting building and remodeling boom hit the residential side of construction, fueled in part by so many people spending more time at home.

The instability of those early weeks and months caused almost all commercial and healthcare projects to be put on indefinite hold while everyone waited to see how real estate and construction would shake out.

Of course, the pandemic also had a great impact on healthcare itself with offices closed, elective procedures halted, social distancing in full swing, and in turn, many not seeking healthcare services whether needed or not. This constraint on physician offices and hospitals caused healthcare professionals to put off decisions on making physical changes to existing facilities due to the unknown of what the "new normal" would be for healthcare.

As clinics began to reopen and commercial projects started back up, the industry faced challenges of demand for materials, supply chain disruptions, skilled labor shortages, manufacturing delays, and natural disasters such as timber forest wildfires, all of which contributed to driving costs to unprecedented levels. Adding the aforementioned to multiple pre-pandemic healthcare projects and renovations that had been on hold, the skilled labor market recognized a near breaking point strain. In healthcare construction, the demand for materials and labor practically doubled. According to Cushman & Wakefield, the national average fit-out costs for a first-generation space are now $122 per square foot. Locally, however, we are seeing a minimum of $150 per square foot for new construction.

Time, Cost, and Quality

Prior to the pandemic, these three cornerstones of construction generally held similar weights. In 2022, it is more likely that healthcare clients will need to prioritize one over the others. For a project to be completed on time, for example, cost and quality may require extra value engineering.

Scenario planning with a fully integrated team that communicates early and often is now more valuable than ever. Engineers, architects, client stakeholders, project managers, and trade contractors working in unison to achieve a shared purpose is of the highest importance. Transparency and communication from the earliest days of planning and design aids in setting a tone for continuous value engineering throughout the project. As issues arise, all members of this team must take responsibility to look for alternative ways to reach the end goal. Frequent sharing of creative options and what-if ideas offer greatest protection of the project's goals and budget, becoming a strong defense against supply and/or cost issues. Sharing of recent project ideas and obstacles is of great importance to offer insight on possible delays in order to keep present projects on track and within budget. By working synergistically, identifying multiple alternatives and thinking outside of the box, a collaborative advantage emerges to tackle the challenges of a volatile marketplace opening up creative options and new possibilities.

JJ Kamholtz and Nancy Ferren are with Veritas Medical Real Estate Advisors.

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