San Diego eyes impact of health reform on CRE

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Experts in California’s San Diego County are considering how landmark health insurance reforms will affect the commercial real estate arena, the San Diego Business Journal reported.

Given that more than 30 million Americans will gain access to medical services as a result of the reforms, some say rising demand for care will lead providers to set up additional outpatient and urgent care facilities closer to population centers.

“That’s the million-dollar question: If you build it, will they come?” said Stephen Dok, head of the health-care practice group in Grubb & Ellis Co.’s San Diego office.

Dok said for the past several years, health care has been a big driver of real estate in San Diego, a trend that’s largely due to area demographics, as Baby Boomers age and require more medical services.

In San Diego, medical office vacancy rates have stayed lower than the overall office vacancy rate, though the medical side has not been immune to difficulties.

At the end of 2009, Dok said, the vacancy rate for San Diego County’s approximately 935 medical-related office properties stood at 8.5 percent, up from about 6.5 percent 18 months earlier.

The county’s overall office vacancy rates is hovering around 15 percent to 18 percent, according to various area brokerage firms.

“Nothing is recession-proof, but medical real estate generally has been recession-resistant,” said Shawn Janus, a Chicago-based managing director in the health care practice of real estate firm Jones Lang LaSalle, which has operations in San Diego.

Janus said health-care reforms will likely hasten existing trends toward extending care, as hospitals expand outpatient services and medical practices in more neighborhood-oriented locations.

“It’s definitely going to drive demand for new space,” Janus predicted, but said that such changes may not happen for several years.

There are also factors that could delay or prevent a boom.

Groups such as the American Academy of Family Physicians have projected that by 2020, the national shortfall of primary care physicians will reach 40,000.

General-practice doctors have been dropping in numbers relative to demand in recent years, as a result of falling government reimbursement rates and the enticement of more lucrative specialty practices.

Douglas Barnhart, chairman of J. Reese Construction Inc. in San Diego, says that until those provider issues are dealt with, he doesn’t expect health care reform to inspire much new development.

“The big unknown is what’s going to happen with doctors,” Barnhart said. “If there’s going to still be a shortage of doctors, maybe they won’t need as much new space.”