NEWMARK KNIGHT FRANK

WHY MEDICAL TENANTS ARE GOOD FOR OWNERS

When establishing leasing strategies for office and retail buildings, or sales strategies for parcels in mixed use developments, owners are wise to consider the benefits a healthcare organization may bring.

Before considering specific benefits, it’s helpful to note that there is a definite trend towards the inclusion of such tenants in traditionally non-medical environments. For example, at a recent Healthcare Investor’s conference, the manager of a large multi-state portfolio revealed that his current directive is to achieve 10% medical usage in all retail developments. Office spaces are affected as well… as medical practices continue to secure revenues and increase market share by locating closer to their clients, many office owners will see increased inquiries from medical practices.

There are many reasons to consider including medical tenants in one’s office or retail portfolio. A few include:

  • Longer-term revenue streams. All factors being equal, doctors do not like to relocate. In addition to the operational headaches all business users experience in a relocation, healthcare providers have to deal with specialized build-out requirements and complex insurance protocols… both of which lead to further cost and disruption. In the case of Ambulatory Surgery Centers (ASC’s), the arguments are even stronger. ASC’s generally require some form of regulatory approval (depending upon the jurisdiction), and providers are loathe to revisit the approval process once they’ve completed it. Also, ASC’s bring substantially higher build-out costs (which add value in and of themselves) and are highly marketable for reuse. Our nation’s rising healthcare costs, coupled with healthcare reform, have spurred a demand for such facilities – one that is predicted to remain strong indefinitely.

  • Increased selling price. A property’s value to investors increase with the longer lease terms and revenue streams medical occupants bring. Because longer lease terms reduce owner’s vacancy periods, tenant reconfiguration costs and re-leasing costs, they increase the amount an investor is willing to pay for your property.

  • Continued Demand. Healthcare Reform is projected to add over 20 million insured people to the pool of healthcare consumers. And it is unlikely that technology will ever eliminate the need for patients and doctors to meet face to face in a doctor’s office. More so than any other industry, one can reasonably expect the demand for healthcare services to remain strong through the decades to come.

  • Recession Resistance. Strongly related to the Continued Demand point above, healthcare practices endure economic downturns much better than most other occupant types.

  • Increased property awareness. Practices that market directly to the market, such as ophthalmologists, plastic surgeons, dentists, etcetera, will improve market awareness of your building as their advertising brings people to your building that might not otherwise learn of it.

  • Enhanced foot traffic (retail). By understanding what medical practice types bring what clienteles, retailers are often able to increase the foot traffic in their development throughout the day AND expose their retail tenants to clients that may otherwise shop elsewhere.

  • The real key to success is one’s strategy. With knowledgeable advisors, owners and sellers can create strategies that maximize revenues, minimize turnover, protect their assets, and enhance sales values.

Written by GHS member John Cobb. John specializes in healthcare and technology tenant/buyer and seller representation. His personal blog is www.healthtechre.com.

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2017 Healthcare Real Estate Outlook