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5 Of The 20 Largest Medical Office Deliveries Expected This Year Are In One City

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A new report indicates Houston’s medical office market absorbed almost 40K SF in Q1, and more growth is coming, with the city poised to be home to five of the 20 largest medical office projects set to deliver this year across the nation.

Overall medical office leasing increased 26.4% year-over-year, according to JLL’s Medical Office Building Insight report that was just released. Additions to the market include the Hope Health Clinic’s 70K SF flagship location in Sugar Land and Orion Medical Group’s 47K SF building in Clear Lake.

Another 606K SF is under construction, according to the JLL report. Q2 is set to bring the delivery of the largest medical office building project in the country this year, per 42Floors.

A 400K SF, $1.3B project is the O’Quinn Medical Tower at the McNair Campus of Baylor St. Luke’s Medical Center, Houston Innovation Map reported. The 12-story building will include an ambulatory surgical center with 12 operating rooms and 10 endoscopy suites, an 80-bay setup for infusion therapy, more than 70 exam rooms and more than 850 parking spaces, the article states.

Four other Houston projects made 42Floor’s national top 20 list. Two of them are Kelsey-Seybold projects slated to deliver in Q3: a 158K SF center on the North Grand Parkway and a 116K SF ambulatory surgical center in Clear Lake. The other two projects listed are the 159K SF Houston Methodist Sugar Land Hospital Medical Office Building 4 and the 107K SF 1715 Project in Friendswood.

Houston offers the highest concentration of medical office building projects of any metro on the 42Floors list. That designation comes as healthcare systems like Houston Methodist and Memorial Hermann continue to expand their operations to match population increases, leading to sustained growth in the medical office market, JLL’s report states.

Other trends seen in Q1 include the popularity of Class-A medical office space, reflecting the flight to quality seen across the entire office sector. The absorption for Class-A medical office totaled about 50K SF while Class-B’s was -10K SF, balancing out to the nearly 40K SF total absorption.

Sugar Land and Clear Lake continue to show themselves as strong suburban markets for the medical office building market development, totaling over 2M SF and 1.75M SF of inventory, respectively.

The Woodlands, which is looking to become a hub for the life sciences industry, has 2.52M SF of medical office building inventory, according to the JLL report.

“Houston’s medical industry is propping up its potential to draw life sciences business,” Matt Gardner, leader of CBRE’s Americas life sciences advisory group, told Bisnow. “For decades, the pieces have been there. I think the sense around the world in the industry is that it’s starting to come together now. And it’s starting to show up for more of the growth that we’ve been hoping for for a long time.”

 

Source: Bisnow

‘Medtail’ Is Making Its Name In North Texas

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Changing consumer and practitioner mindsets are aligning with landowners to bring more healthcare tenants to the retail space.

So-called “medtail” is a growing trend in North Texas, in part due to hospital systems and real estate brokers both transitioning new developments away from large community hospitals and stand-alone healthcare buildings and into pared-down medical centers and retail locations.

The rise of medtail accompanies the growth of online shopping, decreasing the need for brick and mortar retail locations for consumer goods. But most healthcare services can’t be done online, making them great candidates for retail locations to drive foot traffic in a development.

Dallas-based Northwood Retail, which operates the Shops at Park Lane, has been at the forefront of this trend, signing retail leases with seven healthcare providers and nine wellness locations last year.

Retail is less about soft good clients, says Northwood President Ward Kampf, and much of that is due to a perfect storm of demographic changes. Aging baby boomers are in greater need of healthcare facilities, and younger Millennials and Gen Z consumers bring a heightened awareness of health and wellness to their discretionary income. While the older generation is looking to slow the aging process, social media growth means that young people today have more eyes on them than past generations. They want to look healthy and beautiful on camera, leading to a focus on health and wellness.

Consumers want convenience as well. Medtail allows them to get in and out quickly and avoid large medical centers and shopping malls with inconvenient parking. Ferrari Orthodontics in Lakewood and Westlake Dermatology across the street from SMU are new examples of health and beauty retail developments reflecting demographic shifts.

“Kids today are more aware of appearances,” Kampf says. “These businesses play to younger consumers.”

The growth of urgent care has been a beneficiary of this growing trend in North Texas. Children’s Health, Baylor Scott and White Health, Texas Health, and Medical City Healthcare all have their own outpatient urgent and primary care brands, which can be found in retail locations around DFW. Urgent care is meant to be convenient and efficient, and retail makes excellent sense for patients.

“As you look at the expansion of facilities, and what types of facilities we talk, the retailization of healthcare is about really two things: visibility of the brand and accessibility for the patients,” says Ethan Garner, senior vice president for JLL.

Foot traffic is an integral part of the equation too. Because of how we consume healthcare today, health and wellness locations can be significant drivers for shopping centers, so landowners are tapping health, wellness, and dental locations to fill empty retail space. Retail giants CVS and Walgreens have also launched their own health clinics, adding more providers to retail developments.

“Mindsets are changing,” Kampf says. “A doctor can drive traffic. People are asking, ‘Does it fit?’”

Concierge medical practices are another model that lends itself well to retail, and their growth has been a driver of the medtail trend. Administrative hassles and shrinking reimbursement rates have led many physicians to strike out independently and operate outside of the health insurance market. These physicians don’t want to retire but are tired of dealing with red tape, and if they can attract enough well-off patients, it can be lucrative.

“Doctors want to do their own thing and to get their own clientele,” Kampf says. “For families and older people, they want that ability or access 24/7 because they know they’re getting older, and they want quick access.”

Highland Park Village, one of the state’s most luxurious retail spaces (and its first), is not immune to the trend. Dr. Barbara Sturm recently opened a med spa offering wellness and skin care services. A generation ago, it would have been outlandish to find a physician’s office in between Prada and Gucci, but healthcare is increasingly seen as a prestige tenant.

“They’re going to be careful that their strip center is not going to get run down or have a vape shop next to them,” says Thomas Allen, CEO of Practice Real Estate. “They’re going to pay the rents to get the nice centers.”

Both luxury and mid-level retail landowners continue to see healthcare as an asset rather than an option of last resort because of the way we consume healthcare today.

“This is for all spectrums. Whether it’s the highest-end center or it’s about convenience, people want these services to be part of the retail mix,” Kampf says. “People want retail presence, footsteps, and awareness.”

 

Source: D CEO Magazine

Where Medical Office Acquisition Opportunities Are

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Healthcare real estate in the US is in a state of absorption and expansion, as networks and organizations battle it out to claim the best practices and locations.

There is flux within the sphere, reported NAI Global last week, with medical REITs among the most active buyers in 2021, looking for product and paying big numbers.

One acquisition opportunity are point-of-access clinics, located within diverse communities. Another increasingly popular acquisition target are independent specialty practices—regardless of size—which are being absorbed by large systems. Meanwhile, other clinics are looking to break away, creating real estate disposition opportunities.

Buyers And Sellers In State of War

Additionally, off-campus, multi-specialty clinics and ambulatory surgical centers are seeking strategic locations for expansion and geographic reach, representing more opportunities. The current and foreseeable climate is one of “war,” according to one commentator to NAI Global, as firms compete for market share and dominance.

Medical office buildings have been incredibly stable throughout the pandemic with occupancy rates remaining unchanged and asking rates increasing. Their stability compared to other classes continues to draw interest from investors who see it as a “safe” investment despite construction costs increasing in 2021.

Finding Historically Low Cap Rates

Fully leased MOBs with credit tenants are expected to continue to trade at historically low cap rates in 2022. Large institutional owners have maintained their rentals, concession packages, and the like, while local landlords with mixed tenant profiles are more willing to offer competitive lease packages and incentives to attract and secure medical tenants.

The sector does face specific challenges though, NAI Global also says. Staffing shortages, including burnout of healthcare workers, will continue in 2022, resulting in pressure to both provide care and remain profitable. Additionally, costs for care will outpace inflation, as the overwhelming demand requires additional expenses.

 

Source: GlobeSt.