Tag Archive for: outpatient services

Tenants Increasingly Seek Medical Office Space Near Jacksonville’s Major Hospitals

The medical office market in Jacksonville, Florida continues to improve as vacancies among medical office buildings have reached their lowest point in the past 10 years, at roughly 5.8%. This is around 280 basis points below the metro average for all office inventory. Vacancy levels are not expected to rise much, as construction in the region has slowed.

Medical office properties in Jacksonville have generally performed well this cycle, as demand for this subset of office space has been increasing. While medical offices comprise merely 15% of total office space in the metro, it has accounted for around one-third of office deliveries over the past decade.

Overall, medical office properties are typically built adjacent to major healthcare facilities and hospitals, creating clusters of healthcare services and tenants. For example, developers have built several medical offices surrounding St. Vincent’s Medical Center’s Southside campus. Around 76,000 square feet of space is either underway or has opened in the area since 2010. The largest building, at 7021 A.C. Skinner Pkwy., is home to the Jacksonville Surgery Center’s 21,200-square-foot location.

With minimal construction activity compared to previous years, year-over-year rent growth is around 4.5% in the medical office subset. These facilities are generally more standard-built as opposed to the sprawling office parks found in Jacksonville’s top-performing Southside submarket. Thus, rents are more on par with Class B properties in Jacksonville, with gross asking rents of around $20 per square foot.

An aging population, and the popularity of outpatient services, has helped fuel demand for medical office buildings in recent years. In Jacksonville, population growth among those aged 65 years or older has increased faster than any other age segment over the past five years. On the economic side, jobs numbers in the education and health services industry have grown at a faster pace than almost any other industry in the past 10 years, behind only professional and business services. These demand drivers are expected to remain vital pieces of the demographic and economic profile of the region in the coming years.

 

Source: CoStar

/by

Top Trends Driving Demand For Healthcare Real Estate In South Florida

South Florida is on the verge of a major statewide demographic shift, with impacts that will ripple through the healthcare economy in many ways. Currently home to the highest concentration of older residents in the nation, more than 3.3 million Floridians are 65 and older, with 1 in 20 now 80 years old or older.

With continuing migration into Florida and increased longevity, nearly 1 in 4 Floridians will be 65 and older in 2030, according to The Florida Legislature Office of Demographic Research.

This growing population sector will certainly increase the local demand for medical care, but will there be enough medical real estate to keep up?

Real estate development and demographics go hand-in-hand. Our aging population will require more medical care.

Medical providers will need to prepare in advance for the demographic shift. Physicians must prepare for expansion. Diagnostic and treatment centers will need additional locations. Hospitals will need to expand outpatient services, on-and-off campus offices, and possibly acquire more medical practices.

Considering these needs, the current commercial real estate market presents formidable challenges to medical providers.

Construction costs are up and vacancy rates are down, making renovating and leasing existing space more difficult and cost-prohibitive. Regarding factors limiting construction of new medical office buildings, the apartment boom has driven land prices so high that office developers cannot compete to purchase sites.

Lenders have financed many new apartment projects but shied away from speculative office development. Medical office requires more parking than many other uses, thus requiring more land for development. Will these costs be passed on to the patients or will they lower profits for medical providers?

This looming demand for property to build patient treatment facilities likely will require creative solutions such as infill development, repurposing existing properties, and utilization of nontraditional properties for medical care.

For example, there are many “big box” retail sites (think Sears, K-Mart) that could easily be converted to medical uses. The parking is there, and the structures are sound, requiring only interior renovation.

Will investors continue to bring funds to medical office REITs and other medical properties? There is lingering uncertainty about the long-term impacts of the Affordable Care Act (ACA) and the Tax Cuts & Jobs Act (TCJA), including how many people will be insured, how leases will be treated for accounting purposes and other investment considerations associated with purchasing, leasing and owning.

Another big question is how new technologies, particularly telemedicine, will reshape South Florida’s healthcare delivery system. This may upend the traditional “bricks and mortar” medical office to a degree none of us can predict.

Despite various reasons for uncertainty, the coming increase in demand for medical services should keep investment in medical properties at a high level. In fact, in 2016, 2017, and 2018 to date we have seen very healthy investment and development in healthcare real estate.

On a national scale, according to data released by Revista and Healthcare Real Estate Insights (HREI), outpatient medical real estate development projects totaling nearly

$7.7 billion in construction value and 19.4 million square feet were completed in 2016, while another 17.3 million square feet of outpatient projects with a value of almost $6.5 billion were started.

Locally, in 2018, Cleveland Clinic Florida opened its new, three-story, 73,000-square-foot Coral Springs Family Health Center. Built for about $33 million and equipped for another $20 million, the ambulatory surgical center houses 17 medical specialties, imaging and diagnostic services.

As the aging population continues to shape the future of healthcare real estate in South Florida, healthcare real estate developers will face challenges related to finding land and existing buildings at a reasonable price. End users, including hospitals, physicians and diagnostic centers, will have difficulty finding affordable space to lease and contractors who can perform at an affordable level.

Navigating this real estate landscape demands market knowledge specifically as it pertains to healthcare providers. Expect to see emphasis on creative long-term options for renewal and expansion as a hedge against diminishing supply and rising costs.

Brokers, attorneys and appraisers who are experienced in the healthcare real estate sector will be focused on guiding all players through the markets and locating “deals.”

Source: Miami Herald

/by