The world of health care is catching up to the practices of retailers and service providers when it comes to real estate decision-making. As physician practices compete for patients not only with their services but with their branding and accessibility, we are continuing to see a surge of medical uses in properties that were once considered off limits to such practices.
“The days of the of six-story medical office building, where there are 15 or 20 practices from different providers scattered throughout those floors, are not gone, but the trend is toward single-provider, single-entrance locations where the practice can really brand itself. Many providers strongly prefer their own front door and the visibility and signage that retail locations offer,” says Eric Schreibman, Vice President of healthcare and office real estate advisory services at Cushman & Wakefield | CRESCO Real Estate.
Smart Business spoke with Schreibman about how health care providers are changing the look of their practices.
What are you seeing in terms of how health care trends affect the real estate market?
Health care users are now an attractive food group for vacated retail spaces or small office buildings that may have been vacated during COVID. This is a positive trend for many landlords who lost tenancy as a result of the pandemic. For example, I’m working on two urgent and primary care-related projects where my clients have made it absolutely clear that they want to be in prime retail real estate, or alternatively, in a free-standing office facility with street visibility. You see it with dermatology, with sports medicine, physical therapy, even pediatrics. Those are great specialty practices that have become attractive prospective tenants in many types of properties, not just traditional medical office buildings (MOBs).
How is the desire for customization driving the market?
You are seeing providers design their own spaces specified to their needs. Probably the most attractive space to a health care provider is an open white box with lots of windows, great natural light and the ability to design your space from scratch.
There’s this maxim, ‘Plumbing is expensive to move, and if you’ve already got exam rooms, there’s a lot of value to that.’ That’s only true to an extent. Unless they are already properly sized and efficiently laid out, that it’s built out to modern health care standards, it’s probably not going to be a simple tweak. Often, you’re better off starting from a blank slate that meets your technical requirements: It’s well-sized, it’s well-lit, it’s sufficiently heated and cooled, there’s great signage opportunities, there’s plenty of parking. Practitioners, particularly large hospital systems, are looking for those things, as opposed to, ‘I’ve got exam rooms, but, one’s a little weird-shaped, and another is kind of small, and one is too big.’ More and more, the advantage goes to the well-capitalized landlord who says, ‘I have the basic aspects, and the ability to help you fund construction costs, which will be significant.’
Do you see a preference in deal structure, i.e., buying vs. leasing?
Some owners only want to sell, or only want to lease. Many sophisticated owners offer medical providers a build-to-suit opportunity, because the owner has significant development and construction expertise. This may be an attractive option for the end-user, who doesn’t necessarily want to get deeply involved in securing governmental entitlements and hiring contractors. Landlords who offer those services are at a real advantage. There are ground lease situations, where the owner wants to continue to own the land, so they ground lease it on a long-term basis to the provider, who builds a structure, and the provider owns that building, but the developer owns the land.
Most health systems like to control the dirt if the land is on or near their hospital campus. And if they have planted a flag in that area and plan to continue to increase their reach in the market, they may want to own it. But in cases where the system is newer to the market, and maybe does not have a large in-patient facility nearby, it makes more sense to lease and have the ability to test the water before considering owning real estate there.
Flexibility is a great thing. As a landowner, if you can be flexible on how you’re willing to structure a deal, you’ll broaden your chances of landing a health care provider as a tenant or buyer.
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