Both on campus and off campus medical space showed positive absorption in the Second Quarter of 2005. With occupancy rates strong and rental rates increasing, medical office space in prime areas is becoming more difficult to find.
The trend in outpatient procedures is having a pronounced impact on the healthcare industry. Hospitals are establishing satellite healthcare facilities in rapidly growing neighborhoods in order to be closer to their patients. Non acute facilities such as diagnostic imaging centers, ambulatory surgical centers, wellness and fitness centers and urgent care centers are also establishing services in these neighborhoods. More physicians are looking at these areas to locate offices for their practices. Off campus locations are being pursued by some primary care physicians because of the opportunity to achieve lower cost alternatives than possible with an on campus location. Specialist physicians that occupy an off campus location are also in a good position to establish referral arrangements as patients seek services in these areas as well.
Medical office space site selection is consistent with the way retailers choose their space. There is an emphasis placed on ease of access for patients, plentiful parking and well equipped physical facilities. As physician groups merge their practices they need larger office spaces. Some physicians who once were sole practitioners are forming specialty groups. Even individual physicians are leasing or purchasing larger spaces with the idea of sharing or renting out the excess area. This is changing the way medical office space is being absorbed. The main objective is to reduce overhead expenses. As a result, the availability of large contiguous space in prime suburban areas is becoming limited.
Rental rates have reached the point that new construction of medical office space is becoming feasible. Due to this demand, new projects are being developed in booming areas like Homestead, Doral, Coral Gables, South Miami, Kendall, West Kendall, Aventura, Pembroke Pines and Miramar.
Because of the specific needs of medical offices, in many cases it is easier to build a medical office building from scratch than reconfiguring a non-medical office building. These special needs include more extensive plumbing, the creation of smaller rooms and greater air conditioning requirements. Adequate parking is also a primary concern.
Physicians and other healthcare providers have several options to consider in their search for space. They can either lease or purchase. They can either buy their own building, or part of a building.
The office condominium form of ownership is extremely popular in this market. With rising office rents and the scarcity of medical space in prime areas, investments in office space have become increasingly popular. While they might not be right for all healthcare professions, medical office condos have become another option for the healthcare provider who has traditionally leased space. Real estate has also become a viable alternative to the stock market and a way to diversify an investment portfolio.
Physicians see ownership as a way to control present and future office overhead costs, build-up equity and prepare for retirement. Other advantages include tax benefits and property appreciation. The cost for the build-out of medical space, which includes plumbing and cabinetry, is expensive. These improvement costs can be recaptured at resale rather than lost, as in most leasing situations.
A comprehensive study of the market area must be made to accurately compare the advantages of owning versus leasing. These studies should relate specifically to medical office space and should include a financial advisor and a real estate professional that has expertise in the medical office market.
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