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

Undoubtedly, Americans are getting older.

Currently, there are more Americans over the age of 65 than any other time in history. Census data reports that there are 49 million retirement-age adults in America today. Surprisingly, the number of Americans over 65 will double by the year 2055. Every day, some 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

Besides an increasing number of older adults, more seniors have access to medical insurance than ever before.

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 a higher 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.

Even in the midst of a pandemic, when Urgent Care Clinics and micro-hospitals have seen historic drops in patient interactions, the outlook still remains positive for future growth. Many healthcare centers have risen to the challenge of telehealth, using technology to continue treating patients without risking virus exposure. As time goes on, many clinics will continue to use these services in the future. As such, we are entering a new and exciting age for healthcare, allowing seniors to have “doctors visits” without ever leaving home.

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

Currently, seasoned commercial brokers are encouraging real estate investors to buy into healthcare centers. As prices fall, now it a great time to invest in these timeless and necessary facilities.

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. Three Axioms Of Medical Office Real Estate: Location, Location, Location

Choosing a location is a ‘make or break’ decision when investing in a medical office building. 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. Without 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, patients are likely to choose the closest 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.

Finally, prime locations are also more likely to attract higher quality healthcare providers. Medical professionals also want to make money, so healthcare providers look for offices in locations that will have the most exposure. Of course, if a healthcare center has top-quality healthcare providers, it’s also more likely to perform better overall.

In order to learn as much as you can about the location, a market analysis will provide you with the data you need. Contact our investment pros today to learn more about your options.

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 healthcare providers can 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, providing there is enough space to do so. 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 that has room for expansion provides options for future growth.

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. Today, smart buildings are taking over the commercial real estate industry, and the healthcare sector is no exception.

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.

Smart buildings are also helping these businesses save on costs. Automated systems, for instance, can reduce heating and cooling costs exponentially. And building automation systems can reduce costly repairs.

An outdated structure that is not fitted for the latest medical, communications, and other technologies could require 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 technology changes so quickly, a successful medical office building needs to be flexible. As a result, the future of modern healthcare will in turn be more flexible. Particularly as we enter an unknown phase amidst the Coronavirus pandemic, healthcare centers around the world are scrambling to use any and all available technology to increase patient and healthcare provider safety.

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 be used at different scales.
  • Incorporating new technologies that allow healthcare providers to serve patients virtually.

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.

Making Smart Decisions When Buying a Medical Office Building

Healthcare providers In general, most restaurants don’t last more than a single year in business. And e-commerce sales affect retail stores, causing many to shut their doors. Yet Americans will always need healthcare – and more so as the population continues to age. 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. Most importantly, consider location, location, 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 have lower vacancy rates than other types of commercial properties. Therefore, 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, our population continues to age along with the rest of the United States. 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 2019, Houston’s average office vacancy stood above 20% for the third straight year. In contrast, vacancy in Houston’s medical office building market was half that, hovering at just above 11%. One of the major reasons for this is that Houston has a healthy, growing medical sector.

However, like the rest of the country, healthcare jobs have taken a hit due to the Coronavirus pandemic. Compared to April 2019, the healthcare sector lost more than 35,000 jobs in Houston. But when compared to other sectors, like hospitality and food service (which lost more than 117,000 jobs), the healthcare sector still remains a strong investment in these uncertain times.

Even with the downturn, Houston-area medical office building projects continue to move ahead. Projects like the Houston Methodist Clear Lake Hospital expansion are still moving forward. While some projects are on hold, it’s likely that the healthcare sector will remain a critical piece in the Houston economic recovery puzzle.

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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