Medical Office Real Estate Demand Is Outpacing Supply In Dallas-Fort Worth

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Medical office space vacancy rates in Dallas-Fort Worth are more than a percentage point below the five-year average as demand remains strong in the region, according to a report from Transwestern.

The report says that the DFW market is undersupplied, but as rents rise, new construction may become more feasible in the future. Interest rates and material costs are rising, which has slowed down all new construction, and the medical office building space is no different. While rent is growing, it hasn’t kept up with other costs, so underwriting for new construction has been more difficult. But if the limited medical office space remains with increasing population in the region, rent prices will rise until new construction can be justified, the report says.

Prior to the pandemic, Dallas was the country’s second-most active medical office building construction market, behind only New York.

“There’s a definite need for increased health care services, more hospital campuses, and more doctors’ offices, but also the real estate that can house them,” says Andrew Matheny, research manager for Transwestern. “When you set that against the construction levels that have been declining over the last couple of years, that’s going to be a significant driver of rents and new development here in the next few years.”

While square footage under construction and 12-month deliveries are down compared to a year ago in the medical office space, those figures could soon be trending in the opposite direction. Vacancy rates in DFW are at 10.2 percent and were 11.6 percent one year ago. Gross rents are also up nearly 3 percent compared to a year ago.

The healthcare market overall continues to grow. Employment for the hospital space is up 4 percent compared to a year ago and 10 percent for other ambulatory service markets. Total available space is at 13.8 percent, which is below the five-year average for the region.

“In the last three to six months, we’re starting to see transactions come through that are bringing revenue in line with these higher costs,” Matheny says. “That may need to happen here for another couple of quarters before we start seeing more groundbreaking projects.”

South Dallas, in-town Dallas, and along the Dallas North Tollway have some of the lowest vacancy rates in Dallas, though there are zero projects under construction in-town and South Dallas, with just 21,000 square feet under construction near the tollway. In the Frisco/Legacy region, there are more than 150,00 sf under construction, but it has one of the highest vacancy rates in the region, at 13. 9 percent. The East Dallas suburbs (17.3 percent) and Grapevine/Southlake (23.1 percent) have higher vacancy rates than Plano/Legacy.

If the market responds as Transwestern is predicting, the new hybrid work environment will probably play a factor.

“If people are spending more time at home, they’re probably going to prefer to see physicians and providers that are close to where they live, so we may see a geographic rebalancing of health care services close to where people live,” Matheny says.

This trend is already making waves with the growing presence of urgent care centers, retail clinics, and free-standing emergency rooms popping up closer to where people live. Hospitals, too, are moving more services away from central hubs and into ambulatory care facilities. It isn’t just more convenient; caring for people outside the hospital is also cheaper.

Telehealth has surged during and after the pandemic, but Matheny doesn’t see it significantly impacting the medical office market.

“While it may allow a physician to reach more people without coming in, physicians still need physical spaces where they can see their patients face to face,” Matheny says. “From a leasing perspective, it’s been a very busy medical office space. There is a demand for it, and I think people want to see their doctor in person.”

 

Source: D CEO Magazine

Medical Center Of The Rockies In Loveland Plans New Tower, $280M Expansion

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Medical Center of the Rockies is growing into the future with a planned $280 million expansion that will add roughly 100 beds, nearly double the capacity of the emergency department and add a specialized cancer center at the Loveland campus.

(RENDERING CREDIT: UCHealth)

UCHealth, which owns and operates MCR, just announced it would break ground late next year on a five-story tower on the north side of the hospital to serve trauma-surgical, medical-surgical and surgical ICU patients. It will expand the hospital’s capacity from 187 to 283 with room to grow up to 319 beds.

“For several years, our hospitals in Northern Colorado have been operating at or near full capacity, and this investment will allow us to continue to meet the needs of our growing community,” said Kevin Unger, the president and chief executive officer of the hospital. “In addition to an increase in patient bed capacity, we are thrilled to build a comprehensive cancer center and expand our cardiac and imaging services.”

Northern Colorado grew rapidly in the last decade, with Weld County’s population up more than 30% and Larimer’s up nearly 20%. Partly because of that growth, the state has fewer hospital beds per capita than the U.S. average, according to The Kaiser Family Foundation.

The U.S. averages 2.38 beds per 1,000 residents; Colorado has 1.91 beds, the eight lowest among all states and the District of Columbia. Money for the expansion will come largely from UCHealth reserves and may include some philanthropic component.

“We don’t anticipate going out and doing any outside loans or bonds,” Unger said. “As a nonprofit health system, that’s what reserves are for. We don’t pay shareholders. All of our reserves are used for staffing, new technology, equipment and buildings. We are fortunate in Northern Colorado … to be in a population that’s growing rather than shrinking. Our goal is to continue to meet community needs, and for that we need additional capacity. The tower is one of two that will eventually be built at MCR, The beauty of MCR is because it was a greenfield build, we already planned for two new towers.”

The second tower will likely be built sooner rather than later based on the region’s rapid growth.

“We do have that expansion capability at MCR. We’re seeing higher acuity, longer lengths of stay, and population growth driving this as well as unbelievable physicians, nurses and providers within the facility,” Unger said.

With a new tower comes the need for 1,200 to 1,400 additional employees to staff the tower.

“It’s a blessing this project will take awhile to complete; it will take us awhile to staff it,” Unger said. “Construction could be the easier part of the two.”

How Will Loveland And Fort Collins Cancer Centers Differ?

The cancer center is expected to start seeing patients in mid-2024, and the new tower is expected to open in 2026. The new cancer center will feature high-dose radiation therapy, which patients currently travel to metro Denver to receive, as well as a new gynecological oncology clinic; a new radiation oncology program, including a linear accelerator; and additional medical oncology clinic and infusion space.

When it opened in 2014, the Fort Collins cancer center at UCHealth’s Harmony Road campus had room for three linear accelerators and is now at capacity.

“The core of the cancer program will still be based at Harmony … this will be more of a hub-and-spoke model,” Unger said.

Expansion Happening Throughout UCHealth Northern Colorado

The expansion comes on the heels of a $76.5 million expansion and renovation of Poudre Valley Hospital in Fort Collins and the addition of 34 beds at UCHealth’s Greeley hospital that is building out the fourth floor of the 3-year-old facility.

With the updates, the Greely facility will have 87 available beds. It opened with 51 beds and added two ICU beds during the pandemic. The PVH renovation will revamp the front entrance and two of its five floors. It is expected to be finished in time for the hospital’s 100th anniversary in 2025.

Medical Center of the Rockies opened on Valentine’s Day 2007, relieving pressure on Poudre Valley Hospital and bringing UCHealth services to the Loveland area.

In July, MCR became the only Level 1 trauma center in Northern Colorado. UCHealth Poudre Valley Hospital in Fort Collins is a Level III trauma center and Banner Health’s NCMC is a Level II trauma center. MCR has been operating as a high-level trauma center for a couple years but didn’t have the volume of trauma patients required by the state to push it to Level 1 status until now.

The state Department of Public Health and Environment requires Level 1 trauma centers to have around-the-clock coverage by trauma surgeons and specialists in orthopedics, neurosurgery and anesthesiology, either in-house or on-call. The state also requires the hospital to provide trauma prevention and education.

In 2021, MCR treated 1,853 patients who met the criteria to be included on the trauma registry. That was more than double the 880 trauma patients treated at MCR when it opened in 2007.

The $280 million project at MCR will include:

• A five-story tower to serve trauma-surgical, medical-surgical and surgical ICU inpatients, among others.

• A cancer center on the first floors of both the north medical office building and the new tower. The new cancer center will feature high-dose radiation therapy, which patients currently travel to metro Denver to receive, as well as a new gynecological oncology clinic; a new radiation oncology program, including a linear accelerator; and additional medical oncology clinic and infusion space.

• The emergency department will grow from 27 to 49 rooms and include a new entrance.

• Two electrophysiology labs and two cardiac catheterization labs will be added to the south side of the existing hospital building.

• Imaging will be expanded with additional CT, ultrasound and MRI services and an additional interventional radiology suite on the east side of the existing hospital building.

• Parking will be expanded for patients and staff.

 

Source: Coloradoan

Building Sales And Medical Growth Boosts Property Along Dallas’ Stemmons Freeway

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One of Dallas’ first business districts is seeing a robust revival.

Construction of Stemmons Freeway, which started in the 1950s, sent office development northwest of downtown Dallas.(PHOTO CREDIT: Tom Dillard / Dallas Morning News Photographer)

Starting in the 1950s, office construction spread northwest of downtown along Dallas’ new Stemmons Freeway. By the 1960s, the Interstate 35E corridor between downtown and Dallas Love Field was seeing a building boom with dozens of new business addresses popping up along the highway. But the Stemmons Corridor was loslifeing its shine by the 1990s, with many of the big office employers headed to newer pastures in North Dallas, Irving and Plano.

Now the area is seeing a rebound, with multiple property sales and plans for construction.

 “It’s amazing how things have transitioned over there — it’s all of a sudden gentrified,” said Gary Carr, vice chairman of Newmark Group.

Newmark has recently handled several office building lfie sciencessales along Stemmons Freeway and Mockingbird Lane The commercial real estate firm is marketing the two Mockingbird Towers, one of the largest office properties in that area.

“The growing interest in the area is due to the local boom in medical and life science operations,” said Carr. “A big part of it is the hospital district and the growth at Parkland Hospital, UT Southwestern and Children’s Medical. They’ve taken a ton of office square footage over there. Development is also a result of Love Field expanding and everything moving in that direction.”

The centerpiece of the Pegasus Park project is this 18-story office tower that was once the headquarters of jeweler Zale Corp. and, before that, Exxon Mobil.(PHOTO CREDIT: Elias Valverde II / Dallas Morning News Staff Photographer)

Redevelopment of the former Exxon Mobil office tower on Stemmons at Commonwealth Drive has spurred other investments along the highway.

Small Investments and Lyda Hill Philanthropies converted the vacant office high-rise into a mixed-use office campus for biotech firms and nonprofit organizations called Pegasus Park. UT Southwestern Medical Center, Massachusetts-based BioLabs and Taysha Gene Therapies along with other firms have taken space in the building.

“Pegasus Park is growing as we expected and attracting lots of new activity,” the owners said in a statement. “It is truly becoming the center of the life sciences cluster here in North Texas, and we are excited about continuing to build the ecosystem.”

Small Investments acquired a second office tower for redevelopment at 2525 North Stemmons.

A Wisconsin-based medical real estate firm, Hammes Partners, has purchased the largest office building in Dallas’ Stemmons Freeway corridor northwest of downtown — the 20-story Trinity Towers at Stemmons and Inwood Road.

Ricchi Tower along North Stemmons recently sold to the city of Dallas for more than $14 million.(PHOTO CREDIT: Shafkat Anowar / Dallas Morning News Staff Photographer)

The city of Dallas spent more than $14 million to buy the Ricchi Tower at 7800 North Stemmons to be used for “city services and operations.”

And a California-based medical real estate firm, Alexandria Real Estate Equities, bought a vacant block at the northeast corner of Mockingbird and Harry Hines Boulevard where it’s planning a medical campus, real estate brokers say.

The Alexandria site is across the street from Exchange Park, where UT Southwestern is eyeing a major expansion.

“What’s happening in the area is truly exciting,” said Kolby Dickerson, vice president of TXRE Properties. “When I got down there 10 years ago, it seemed like nobody else wanted to work there. You have new and well-capitalized owners putting money into the buildings and providing great quality office space at a discount to the overall market. It’s probably the most affordable office space in Dallas. The activity is growing as people are getting priced out of Uptown, Las Colinas and even buildings on Central Expressway.”

TXRE Real Estate has bought and sold offices in the Stemmons Corridor and still has properties in the area. Dickerson said developers are taking a look at the locations for building sites for apartments and other projects.

An Austin-based apartment builder is buying a vacant office at 8001 Stemmons that will be demolished to make way for rental units.(PHOTO CREDIT: Shafkat Anowar / Dallas Morning News Staff Photographer)

OHT Partners, an Austin-based apartment builder, is buying a vacant office building at 8001 Stemmons Freeway and plans to demolish the property and put up rental units.

“You can get a lot of land down there that is already zoned at prices that are way less,” said Jake Milner, who is working with J. Scott Lake of Davidson Bogel Real Estate to broker the property sale to OHT Partners. “We are already getting calls from other owners in the area saying, What is my dirt worth?’ ”

 

Source: Dallas Morning News