Signs of the Times
It was the elephant in the room when the HEALTHCARE DESIGN and Healthcare Building Ideas teams started discussing this year's architecture/engineering and construction firm rankings: the economy. Would we see a drastic fall off in numbers this year? Would some firms be less willing to participate if its numbers were significantly lower, lest they look weak compared to their peers? And most importantly, how exactly is the financial crunch impacting your business?
Rather than speculate, we decided to cut to the chase and simply ask the firms directly. And so, on the submission form was the following optional editorial question: Given the current economic climate, how would you compare the developing 2009 market with the 2008 data that you submitted? What follows here are some of the answers we received that we felt shed the best insights on the state of the industry, both from a firm-by-firm and a universal point of view.
Burt Hill, Inc.
The 2009 market is starting very slowly due to the economic downturn, which is just the opposite of 2008. In 2008, the first eight months of the year flowed along with the normal amount of projects moving through design and construction, then in the last four months, very few new projects started and many existing projects were put on hold. We feel that the 2009 healthcare design market will start picking up around midyear as hospitals approach the start of their new fiscal year on July 1, 2009. Until then, the market will continue to be very cautious and slow.
Cogdell Spencer ERDMAN
Our country saw unprecedented economic turbulence in 2008 with the onset of the financial crisis. Our clients continue to be extremely cautious in initiating new capital expenditure programs. Projects that were funded and under construction prior to the capital market disruption are continuing. Projects in planning and design are progressing at a cautious rate with healthcare leadership carefully monitoring financial markets. We anticipate this trend will continue through 2009.
We continue to acquire project financing for our real estate development pipeline. However, many of our clients are challenged by the unavailability of capital at pricing that is needed to meet financial performance metrics. We remain confident in our long-term business plan, and we are well-positioned as a market leader to help our clients carry out their vision once liquidity returns and project funding resumes.
HDR Architecture, Inc.
We anticipate that the long-term healthcare design and construction market will enjoy steady increases due to two primary considerations: the aging and obsolescence of existing healthcare facilities, and the fact that as baby boomers age and their life expectancy is extended, a higher percentage of the population will be living with chronic medical conditions and accessing healthcare facilities for care and rehabilitation.
A majority of our work is devoted to new replacement hospitals and expansions to existing facilities to accommodate increased capacity for both inpatients and outpatients. Additionally, the rise of “consumerism”-where patients are demanding a higher level of service associated with their healthcare choices-means that hospitals are investing in their facilities in order to provide more patient-centered amenities.
Other areas we are noting an upturn in activity is in specialty hospitals, notably children's hospitals and psychiatric facilities.
A significant growth area that HDR is pursuing is in the growth of academic medical centers, institutions that are combining research with clinical care-a concept called “translational medicine.” As the important connections are being made between quality patient care and the big breakthroughs in research, these “bench to bedside” facilities will become increasingly important, as well.
The healthcare industry is facing a confluence of challenges unlike any seen before. The delivery of healthcare must be re-imagined to respond to the imperatives of rising costs, an aging population and the expansion of care to all children, shortages of skilled staff, and the broadening of access to care to new populations. The fundamental charge for health providers will be how to do more with less.
Uncertainty in the U.S. economy has created a host of funding and borrowing challenges. Yet, much of what hospitals buy consists of systems, building equipment, and medical equipment, which are now provided on an international basis. As other economies aspire to rich-world levels of services, the costs of these elements will continue to see upward pressure.
Tomorrow's approach to healthcare will need to be reinvented. We need to provide new strategies and new models for the physical distribution of care that leverage community opportunities. Coupled with planning that accommodates future technology platforms, these must support collaboration and foster heightened productivity all without building entirely new facilities.
Pope Associates, Inc.
During 2008 our healthcare team saw strong activity in the first half of the year with some clients pulling back during the 3rd and 4th quarters as economic conditions worsened. Projects in early stages were placed on hold and a “wait and see” attitude was broadly adopted. However, projects already funded continued to move forward, taking advantage of reduced material lead times and overall construction cost savings. The first quarter of 2009 began very slowly, but recently more proposal activity and inquiries seem to signal that clients believe the economy will eventually resolve, and that it may be beneficial to have projects ready to move forward quickly once financing is more available. Firm-wide, a sizeable number of projects remain on hold. We are anticipating that as financing loosens many will choose to move forward simultaneously creating some scheduling challenges. Those projects furthest through the design and approval pipeline, we believe will benefit most from favorable construction pricing during the early stages of the recovery.
Rees Associates, Inc.
We expect the current economic climate to slow some spending on facelift type renovation work. However, we expect to see an increase with stimulus money helping the healthcare industry renovate to applicable codes and increasing patient satisfaction and healthcare availability.
TLC Engineering for Architecture
As anticipated given the ongoing recession, the 2009 healthcare design market is developing more slowly than in 2008, which itself grew at a slower pace than in previous years and was replete with project delays and cancellations due to funding challenges and eroding financial performance. Indications are the 2009 market will see increasing emphasis on renovations and minor expansions compared with new construction as hospital owners grapple with their tighter budgets. Much of the renovation we have seen has been in high-revenue-generating hospital areas and an expanded interest in energy efficiency and sustainable design. Existing hospitals can be made more energy efficient and reliable through retro-commissioning and re-commissioning, installation of higher efficiency equipment, renewable and energy-recovery systems, and the use of variable frequency drives on high-HP motors. Plumbing retrofits can save a hospital thousands of dollars a year and usually average a two-year payback or less. Energy use reductions can also be realized through renovations to roofs, windows, HVAC, and lighting systems that optimize energy use, improve energy management systems, and incorporate renewable energy sources. Information technology infrastructure upgrades necessary to support the reality of digital EMR access and patient-focused technology also has been a boon.
Barr and Barr, Inc.
Although the economy continues to lose ground, the healthcare market continues to remain strong. Advances in technology require specialty Construction Managers with a niche in the healthcare field to perform this work. With pending Medicare cuts, administrators will become more imaginative in how to continue progress in this ever-demanding discipline.
Delmastro + Eells, Inc.
We believe that there will be a surge of acute- level construction activity in the western United States starting in the 3rd quarter of 2009. There is much under design at the moment for projects in Arizona, Nevada, and California.
Gilbane Building Company
The 2009 current conditions are forcing all design and construction firms to become more flexible, creative, and nimble to survive. These conditions are unprecedented since 1982's recession. Many current projects are delayed due to bond funding sources resembling a seized up car engine. Projects that were financially viable just 12 months ago cannot pay the interest with financing their project at today's costs. Competing for new opportunities requires firms to differentiate themselves and add value beyond what is considered exemplary in order to secure what funded work is actually still moving forward. The strong firms will gain market share and be stronger during these tumultuous times, and the weaker one will go out of business or have already. Regardless, this latest economic crisis will forever change the landscape for everyone. HBI
Healthcare Building Ideas and Healthcare Design 2009 Supplement;():4-9