The Best Prescription for Leasing Medical Office Space
By: Christopher Thames, J.H. Berry & Gilbert
Winter 2018 2019
Potential tenants should consider existing medical infrastructure and proximity to other healthcare providers.
ACCORDING TO RESEARCH published by the U.S. Census Bureau, 1 in 5 Americans will have reached retirement age by the year 2030, and those in the 65-and-older bracket will outnumber those under the age of 18. Pair this demographic shift with recent laws expanding access to healthcare, and it’s no surprise that the Urban Land Institute projects a 19 percent increase in the demand for medical office space by 2019, requiring 64 million square feet of property.
In short, healthcare properties will soon be in high demand. Leasing medical office space, however, can be a complex process, and it differs in many ways from leasing typical office space. For example, tenants must assess a facility’s proximity to other healthcare providers or businesses, evaluate a property’s existing or non-existing medical infrastructure and exercise care when reviewing a leasing contract.
Who Are the Neighbors?
When first meeting clients looking for medical office space, it is important to emphasize the adage “location, location, location.” In many cases, considering where the space will be located should be at the top of the list.
If a client can secure a location near other medical practices or referral sources, patients who value convenience may be attracted by the ease of scheduling and locating additional providers or specialists.
However, healthcare renters should consider their potential neighboring businesses as well. For example, they may not want to be close to businesses that could be viewed as contrary to the mission of a healthcare facility, such as a liquor store. It’s important to be protected from objectionable businesses renting adjacent space after a lease is signed, so renters should have a clear, open conversation with the building’s owner before signing an agreement.
The Value of Existing Medical Infrastructure
Typically, cost is the top consideration for any tenant, and a healthcare clinic is no exception. These facilities can generate significant expenses. From outfitting individual patient rooms with furniture and fitting X-ray equipment, to installing extra plumbing and auxiliary power, rent is far from the only cost a medical professional must consider.
Because of that, it’s critical to assess a client’s infrastructure expectations. If they place value on identifying a low-cost lease, tailor a search around properties that were once healthcare offices. Doing so increases the chance that an office’s existing medical infrastructure can be used, lowering the build-out cost.
Despite that, location should still be a priority over leasing an already-existing medical facility. As previously discussed, patients highly value an office’s proximity to other healthcare providers. Even the nicest facilities will struggle to attract business if they are not strategically located.
Before Signing the Lease
After answering a client’s questions and addressing any concerns, the focus turns to carefully analyzing the leasing agreement for any noteworthy policies or statements. One crucial factor to look for is how the property disposes of hazardous medical waste. As the tenant transitions their practice to the new facility, it is important to understand the building owner’s expectations for this process, as proper disposal of hazardous waste can be non-negotiable for a healthcare practice due to local, state and federal regulations. Many physicians contract with their own waste management services, but some larger facilities may require tenants to use a specific vendor to control who comes in and out of the building.
For healthcare professionals, identifying the best space for a medical office is no easy task. It is important to find a trusted partner that helps them understand the leasing, operational and cost nuances that even veteran medical practitioners may overlook.
Looking ahead, commercial real estate firms also must begin to understand the role that medical office space will play in the CRE industry for years to come. They should immediately begin equipping CRE professionals with information about this growing niche.
Christopher Thames, CCIM, CPM, is the senior vice president and chief operating officer of J.H. Berry & Gilbert, Inc.