LOS ANGELES, Calif. — The hospital construction industry has faced challenging conditions over the past five years, with industry revenue contracting at an annualized rate of 4.3 percent to $27.1 billion. In addition to the broader downturn facing the construction sector, hospitals faced a high degree of fiscal uncertainty due to potential changes from the Patient Protection and Affordable Care Act. Furthermore, “because of low profit margins during the recession, hospitals shelved expansion plans and new construction work due to lower available cash to finance these projects,” says IBISWorld industry analyst Caitlin Moldvay. In 2013, industry revenue is expected to continue declining, falling 2.6 percent during the year, based on the latest available monthly data from the U.S. census. In particular, demand for public hospital construction is expected to fall at a faster rate than private construction during the year.
The hospital construction industry includes both private and public hospital construction, with private hospital construction making up 73.2 of the total. “From 2008 to 2011, gains in public hospital construction helped mitigate the industry’s losses due to rising demand for hospital construction by the federal departments of Defense and Veterans Affairs,” says Moldvay. “In 2012, however, this trend reversed itself as reduced tax revenue has caused states and local governments to cut funding for municipal construction projects.” Consequently, in recent years, public hospital construction has fallen at a faster rate than private hospital construction.
Over the next five years, the hospital construction industry is expected to enter into a recovery period. The implementation of the Patient Protection and Affordable Care Act will result in more than 32 million individuals gaining access to healthcare insurance coverage, driving up the demand for hospital services. Furthermore, the gradual aging of the U.S. population will also result in greater demand for hospitals. Hospital construction will also benefit from low interest rates, which will enable lower borrowing costs for financing construction projects. In line with the construction sector in general, the largest firms in the industry are general contractors. On large-scale projects, these players often hire subcontractor firms that undertake distinct, specialized segments of the construction process. These subcontractors represent the majority of industry participants, and typically compete solely on a local or regional basis, contributing to industry fragmentation. The narrow scope of this industry also decreases larger firms’ market shares and decreases concentration.
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