An attractive sub-group within the office category, are medical office properties. Medical office properties can involve ‘single user’ formats, as well as ‘multi-tenant’ developments. Multi-tenant properties are able to bring a variety of medical practioners under one roof, as well as offer various related services - such as pharmacy, laboratory/diagosotic, and physio/chiropractic, to name a few. Locationally, they can be in established or growing residential neighbourhoods, busy commercial areas, or near primary care hospitals in a city.
Medical office properties have typically been characterized as being stable from both a tenancy and cash-flow perspective. Physicians do not generally move around, and at minimum can stay in one location for 5-10+ years. Lease rates on comparable buildings, would likely fall in a narrower and more predictable range within any given market.
All of the same discussion points in evaluating retail and office properties would apply here. Economic performance would consider applicable cap rates for other medical property sales in the area, as well as a diligent review of the tenant summary to assess its overall stability.
Being a landlord of a medical office property presents some different challenges than you might see with other commercial centres. Firstly, parking availability is critical for medical users, and often commands a much higher ratio per square foot, in comparision with retail or business office uses. A busy medical specialist occupying 1500’, can utilitze 15-20 parking spaces during his normal office hours. This may be 3-4 times the need of a business office use (ie. insurance office). Pay particular attention to the area of parking, because it must be adequate for all tenants and their patients/clients. Best practice here, is to observe the site at busy times and get a good sense of how it functions on a daily basis. In addition, pay close attention to the standards of accessibility for elderly/handicapped, sound proofing needs, and restrictive convenants which preclude competing uses.
The best medical office buyers should be ‘physician-owners’, who are likely setting up practices for the long haul and would effectively pay the building off over a 10-20 year stay. In today’s market, traditional real estate investors/landlords are drawn to well-tenanted medical properties across North America – and why wouldn’t they be? With aging populations, health care spending on the rise, and the field of medicine expanding continually, it would seem to be a ‘sweet spot’ for real estate investment.
As always, seek out experienced commercial realtors within your market to assist in finding suitable Medical Property investments.
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