4 Things You Need to Know Before Investing in a Medical Office Building

Undoubtedly, Americans are getting older.

In fact, the number of older Americans goes up annually. Surprisingly, the number of Americans over 65 will double by the year 2055. Not only that, but every single day, 10,000 baby boomers reach the age of 65.

It shouldn’t be surprising that these Americans need more medical care as they age. Consequently, the nation’s aging population plays a major role in the growing medical office building sector.

Medical office building

On top of more people getting older, more Americans also have access to healthcare than previously.

Today, an estimated 20 million Americans who were previously uninsured are now covered by the Affordable Care Act. As a result, having more insured Americans has created more demand for healthcare.

In response to this growing need, buying a medical office building like a micro-hospital or urgent care clinic has become a fantastic investment. Also, unlike many other commercial real estate sectors, medical office buildings are largely immune to the economic factors which affect retail businesses and restaurants.

Overall, commercial real estate experts consider medical office buildings ‘no-lose’ investments.

Currently, seasoned commercial brokers are encouraging real estate investors to jump into the medical market while it’s hot.

4 Things to Know About Medical Office Buildings

If you’ve thought about investing in a medical office building, here are 4 things you need to know before buying medical real estate.

1. The #1 Axiom Of Medical Office Real Estate

Choosing a location is a ‘make or break’ decision. Businesses on or near main roads with higher traffic counts and better visibility typically perform better than businesses in other locations. The medical office building must also be close to a sufficient number of people. Lacking a large enough population and an adequate density of people, a medical business may not succeed.

Also, a medical building should offer ease of access and convenience for patients. If another medical facility offers the same level of care but is more conveniently located near more people, the average person goes to the closer option.

In addition, some locations in the country are better than others for buying a medical office building. “Sunbelt” states, like Florida, California, and Arizona, which all have mild year-round climates, attract retiring boomers as well as families seeking an active lifestyle. Investing in a medical office building in one of these locations is a smart choice. In order to learn as much as you can about the location, a market analysis will provide you with the data you need.

2. Questions About The Size of The Medical Office Building

When seeking to purchase an existing medical office building, the size of the facility is another key factor. Some key questions to ask regarding size are:

  • How many care providers could the building hold?
  • Is there adequate space for imaging technologies?
  • Are there lab facilities or the capacity to add them?
  • How many patients does the waiting area hold comfortably?
  • How many parking spaces are on-site?

Another issue related to size is the capacity to expand the facility. An existing medical office building that isn’t quite big enough could be expanded. Plans for future expansion of services may create the need for additions to the existing structure or even the construction of an additional structure. Buying a property which has room for expansion provides options for the future.

3. Is It An Updated Or Outdated Medical Building Design?

A couple of decades ago, it might have been worthwhile to buy a property for cheap and convert it into a medical office building. However, changes in technology have created a unique type of commercial property.

Modern medical office buildings are more specialized and more digital than ever before. Along with advances in and increased reliance upon technology, medical facilities need ways to save on costs like power. This has produced ‘greener’ medical facilities with features like super-efficient HVAC systems and LEED certification.

An outdated structure that is not fitted for the latest medical, communications and other technologies requires a significant investment to bring it into the 21st century. Although new isn’t always better, when it comes to medical facilities, the physical environment needs to be concurrent with contemporary medical technology.

4. The Strength and Flexibility Of Medical Office Structures

Since technologies do change so quickly, a successful medical office building needs to be flexible. As a result, the future of modern healthcare will be more flexible. Here are a few types of flexibility:

  • Universal exam and procedure room sizes which can accommodate different purposes.
  • Modular design based on traditional planning but which may use prefabricated construction methods.
  • Replicable planning methods which can used at different scales.

Overall, mixing traditional planning and modular construction with prefabricated spaces can reduce both the time to completion and the total cost. Also, using standard room sizes allows flexibility in multiple spaces to adapt to changing needs and evolving technologies. Be sure to keep flexibility in mind when purchasing a medical office building.

Houston Medical Office Buildings

Skyline of the Texas Medical Center – Houston, TX

Making Smart Decisions When Buying a Medical Office Building

In general, most restaurants don’t last more than a single year in business. And e-commerce sales affects retail stores, causing many to shut their doors. Yet Americans will always need healthcare. Because of this, many commercial investors view purchasing medical office buildings as ‘no-lose’ investments.

When you’re choosing to purchase a medical office building, you must consider several factors. First of all, look at the location (including the population density and proximity to residential areas). Secondly, examine the property’s size, but not just the building itself. Look at the land it sits on too.

In addition, healthcare providers generally sign longer-term leases than other commercial tenants. Why? For medical practices, relocation is much more difficult than for many other businesses. On top of that, medical office buildings usually to have lower vacancy rates than other types of commercial properties. In the end, medical properties generally produce a steady cash flow for investors.

Another factor you must consider when investing in medical office facilities is their nearness to hospitals. In general, proximity to a hospital can produce advantages for a medical practice. What’s more, it can make these properties a better investment choice than those further away from hospitals.

Houston Market Outlook for Medical Office Buildings

Houston has a strong medical office market. First of all, it is home to the 1,345-acre Texas Medical Center. Each year, this complex of hospitals, medical offices, and research facilities produces about $25 billion in economic activity.

What’s more, Houston has a growing population. In addition, more and more people reach retirement each year. So the demand for high-quality medical care in the Houston metro area is sure to remain strong. As a result, the outlook for Houston’s medical office market is very favorable.

At the end of 2018, Houston’s average office vacancy stood at 22%. In contrast, vacancy in Houston’s medical office building market was half that, hovering at 11%. One of the major reasons for this is that Houston has a healthy, growing medical sector. For example, the sector added 16,000 jobs between 2015 and 2017, a 5% growth rate in healthcare jobs.

Consequently, the market for medical office buildings in Houston has kept pace. As of February 2019, 1M SF of medical office space was in the construction pipeline, either in planning or in process. By the end of this year, almost 300,000 additional medical offices will be completed. And to top it off, most of the space being completed in 2019 has been pre-leased.

Learn More About Buying a Medical Office Building

For more information on investing in medical office buildings, contact us one of our brokers today.

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