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Medical Office’s New Twist Is Flex Space

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Medical office is beloved by commercial real estate investors, operators, and owners because tenants typically stay for years and have good revenue and credit, allowing rent increases over time.

The medical business never really slacks, and demand is constant. Just ask Amazon why it’s expanding efforts in broadening virtual and physical medical clinics.

According to Shawn Janus, national director of healthcare services in the U.S. at Colliers, there’s a new trend of medical coworking, like a cross between medical and flex office types.

“Medical coworking spaces are shared work environments designed specifically for healthcare professionals, including doctors, entrepreneurs, therapists, and researchers,” James wrote. “These spaces provide a flexible alternative to traditional clinical settings, enabling practitioners to rent office or clinical space on-demand, often equipped with state-of-the-art facilities and medical equipment.”

He mentions a number of companies — ShareMD Suites, Clinicube, and MedCoShare — that offer such space for medical practitioners. Optix, a software vendor for coworking spaces in general, mentions Lina and Wellshare,

The market factors that make the approach potentially attractive are the negatives that independent practitioners face. Starting a practice is expensive. So is expanding one into a new geographic area. There are the costs of equipment and buildout, nursing staff management, appointment and billing management, cleaning, maintenance, and the price of real estate in a desirable location with easy access to parking. If a coworking space is doing billing, it may already be credentialed with insurance companies, a process that could otherwise take months before being able to request payment.

Instead of one business having to underwrite the total cost, a medical coworking facility can amortize the expenses across multiple practitioners. Optix says that thet ype of practitioner who might find a medical coworking space useful includes family doctors and general practitioners, but also mental health therapists, acupuncturists, dieticians, and others. Clearly, the type of tenant a space looks to attract will affect the layout of the space and necessary equipment and facilities.

“Most medical coworking spaces have multiple rooms specifically designed to fit a wide variety of practitioner needs, including therapy rooms, medical rooms, and cosmetic rooms, all under one roof,” they write.

Practitioners get a number of benefits from the arrangement including  affordable space, networking and referral opportunities, more time with patients and less with operations and independence and flexibility.

There is a considerable amount of expense and operational effort necessary in running a medical coworking space, so the decision to invest in the property type is a significant one.

 

Source: GlobeSt.

Medical Office Buildings Continue To Stoke Net Lease Investors’ Interest

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Medical office buildings have emerged as a favorite among investors interested in single-tenant net lease opportunities, according to a new report from Colliers.

Overall, the STNL space posted strong performance in the first half of 2022 and hit a historic high of $40.1 billion in investment sales, according Colliers. However, volume in Q2 fell 35% over Q1 numbers and 17% year-over-year.

Despite that, the medical sub-sector remains strong. Colliers’ Jay Patel cites as one reason “predictable” cash flows and the price range on assets that appeals to both institutional and private investors alike. In addition, there’s COVID-19:

“Pandemic investors flocked to the medical office sector for its perception as a safe, interest- resistant and now pandemic-resistant asset,” Patel says. “During the pandemic, investors were eager to snatch up anything medical-related regardless of lease term, credit, and location.”

Construction pipeline delays have also contributed to an ongoing chasm between supply and demand, which has compressed cap rates.

“Net lease has also risen due to the ongoing supply chain disruptions, slowing the delivery of new product,” Patel says. “This has pushed more healthcare tenants to consider alternative space solutions like the adaptive reuse of traditional office or retail properties.”

Of course, the capital markets have changed this year — and medical office isn’t immune to those shifts. Patel notes that “while capital is still being deployed, investors are no longer scooping up just anything that’s healthcare assets.”

“Buyers are now taking a closer look at credit, lease terms and location. With inflation looming in everyone’s mind, assets that have strong rent increases are experiencing stronger activity,” Patel says. “To bridge the gap for investors that are feeling the burden of this rising interest rate environment, many developers and sellers are starting to shift pricing, which is creeping back toward pre-pandemic standards.

Colliers Julie A. Johnson predicts the asset class will continue to be strong in the near future despite rising capital costs.

“The past several years have been banner years for investors with historically low cap rates and many more buyers in the market than sellers,” Johnson told GlobeSt.com in an earlier interview. But “medical office buildings will continue to be strong with not only the increase of the senior population but also the population increase in many markets, specifically the Sun Belt cities.”

Patel says good lease terms and credit will be critical moving forward into 2023. While previously just one of those elements was needed to sell a property.

“Today’s market conditions necessitate all three factors carrying equal importance when appealing to investors,” Patel says.

 

Source: GlobeSt.

Medical Office Commercial Real Estate Continues To Gain Strength

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Any medical facility likes to hear about improving conditions. That’s exactly what medical office buildings are experiencing: improved fundamentals that make property owners, investors, and operators healthy.

Colliers has a Q3 2022 report on healthcare real estate that covers performance in the top 100 U.S. markets.

“Despite economic concerns and industry challenges, the medical office property sector (MOB) continues to go from strength to strength, setting record highs for asking rents, sales volume, and pricing over the past four quarters,” read the report’s overview. “Demand is outpacing supply, vacancy remains tight, and capitalization (cap) rates have remained relatively stable. As a result, development activity is gaining momentum, reflecting confidence in the sector.”

But it comes with a caveat: the healthcare industry they depend on isn’t feeling so rosy. Pricing pressures are under way, and MOB owners that could mean monitoring and potential course of treatment.

On the plus side, average vacancy in the top 100 metros in the first half of 2022 was 8%. That was 40 basis points below the same period the previous year. The top 10 markets ranging from 6.3% in Boston to Houston’s 12.3%.

Top 100 average Los Angeles had the highest net MOB asking rents at $36.85 per square foot. That was quite the outlier.

“However, none of the other top 10 metros have an average MOB rent higher than $30 per square foot,” the report said. “Boston and New York are the next highest at $26.26 per square foot and $26.19 per square foot, respectively.” Although numbers for the lowest prices in the top 10 didn’t appear, a graph clearly showed that four—Atlanta, Boston, Dallas, and Philadelphia—were significantly below the national average.

To try pacing demand, construction rose, with completions of 14 million square feet in the four quarters ending with Q2 2022. That was up from the 13.7 million square feet from the previous 12-month period. MOB under construction rose more sharply, from 30.9 million to 37.1 million square feet.

And investor demand was strong at $17.2 billion in the four quarters ending with Q2 2022, the highest on record. Though that was largely due to the last quarter of 2021, which according to an included graph stood far above other quarters.

MOB is largely in a position to weather economic storms, as medical care is something difficult for many people to forego. But practitioners are also eying costs.

“In the face of reduced income and, in some cases, operating losses, some providers are cutting staff despite an overall shortage of employees in the healthcare industry.”

That would suggest real estate overhead will also be under scrutiny.

As an increasing amount of MOB is taken up by larger organizations—hospitals, HMOs, and other big operators—lowering those costs are likely to be on their agendas, and they have fiscal muscle to negotiate hard.

 

Source: GlobeSt.