The healthcare construction sector showed robust growth in proposal activity during the third quarter of 2024 largely on the strength of the hospitals submarket, according to the latest Quarterly Market Forecast by PSMJ Resources. The survey of AEC firm leaders reports the overall healthcare market’s Net Plus/Minus Index reached 42.1, up from 38.6 in Q2 2024 and 29.4 in Q3 2023, indicating a continuing trend of recovery despite recent economic headwinds.
PSMJ’s proprietary NPMI is the delta between the percentage of respondents who report growth in proposal opportunities in a market or submarket and those who see a decline. The AEC-focused research, publishing and consulting company has been using this index to track and predict market outlook since 2003.
The hospital submarket, in particular, enjoyed a resurgence that resulted in a rare trifecta – it had the highest index score among all 59 submarkets in the third quarter, while also showing the most improvement both quarter-over-quarter and year-over-year. Hospitals recorded a third quarter NPMI of 69, a dramatic increase from 19.6 in the second quarter of 2024 and 20 in the third quarter of 2023. While 69% of respondents said proposal activity for hospitals increased in the third quarter, 31% said it was flat. No one who participated in the survey reported a decrease.
Increases in both new construction and renovation projects indicate the hospital submarket pipeline is rebounding from project delays and hesitations caused by the rising cost of capital and the uncertainty surrounding supply chains and material availability.
Healthcare market trends and drivers
The steady growth in healthcare construction reflects an underlying demand for infrastructure to support an aging population, technological advancements in medical treatments and the deferred maintenance on existing facilities. Economic factors, including a slight easing of interest rates, have also contributed to the sector’s revival.
Healthcare submarkets outlook
The other three submarkets that fall under healthcare in the forecast also showed positive signs, specifically:
- Medical laboratories: The medical labs submarket posted an NPMI of 39.1, up from 14.6 in the second quarter of 2024 and 16.7 in the third quarter of 2023. The quarter-over-quarter increase of 24.5 and year-over-year gain of 22.4 underscore a growing need for laboratory facilities, driven by advancements in diagnostic technology and a heightened focus on precision medicine.
- Medical office buildings: The MOB submarket registered an NPMI of 30.4, showing a slight quarter-over-quarter increase from 28.6 in the second quarter of 2024 and a marginal year-over-year rise from 30 in the third quarter of 2023. Despite modest growth, MOBs continue to play a crucial role as healthcare providers increasingly shift non-emergency and outpatient services to more accessible locations.
- Continuing care facilities: The CCF submarket reached an NPMI of 30 in the third quarter of 2024, a rise from 24.5 in the second quarter of 2024, but a decline from 42.5 in the third quarter of 2023. The reliably solid proposal activity for CCFs indicates renewed interest in facilities for elderly care, particularly as the U.S. population ages. The year-over-year decline suggests funding challenges and regulatory hurdles may continue to mute the short-term growth of this submarket, though its longer-term outlook remains promising.
Outlook and market dynamics
The healthcare sector’s strong performance in the third quarter of 2024 reflects broader market dynamics, including demographic shifts and advancements in medical technology. However, rising labor and materials costs remain a challenge. The American Society for Health Care Engineering notes healthcare systems are increasingly focused on efficiency, with many opting to renovate and repurpose existing facilities rather than embark on new construction.
If healthcare’s proposal activity growth continues in subsequent quarters, it may indicate the market has turned a corner and sustained growth is on the horizon. The aging population, need to upgrade facilities due to new technologies and deferred maintenance, and ever-increasing demand for healthcare services will drive this growth, even if cost challenges and regulatory considerations temper the pace at times.
Editor’s Note: Information provided by Jerry Guerra, The JAGG Group, on behalf of PSMJ Resources. For more information, visit https://www.psmj.com/surveys/quarterly-market-forecast-2.
