What’s The Prognosis For Medical Co-working Space?

Arizona entrepreneur John Groberg is putting a new twist on the relatively old concept of timeshare space for medical tenants, and one medical office broker in Arizona says Groberg’s idea may have momentum.

Groberg is setting up a medical office space called Viva MedSuites in Scottsdale, a Phoenix suburb. He describes it as part medical timeshare/part medical co-working space (similar to Regus in the office sector).

The 3,000-sq.-ft. Viva MedSuites facility, set to open June 15, is aimed at medical professionals such as internal medicine specialists, dermatologists, nurse practitioners and psychiatrists who are seeking flexible space without being shackled by a long-term agreement.

Viva MedSuites will feature 10 exam rooms, a patient waiting room, bathrooms, a tenant break room and an assistant’s room Tenants will pay $85 a day or $50 a half-day per exam room. This set-up will allow a medical practitioner to add a satellite location, for instance, or test a new market area, according to Groberg.

Under Viva MedSuites’ timeshare-co-working hybrid, “I don’t have just ‘pay a monthly fee and show up whenever you want’ type access, like some more modern executive suite operators have,” he says.

Here’s how the Viva MedSuites model works:

When a tenant signs up, he or she picks a day or days of the week to occupy the space, and then has access to designated rooms only during that period. For example, a doctor might sign up for a full day on Mondays and Wednesdays and a half-day on Fridays. The doctor then would be charged weekly rent based on two full days and one-half day.

“There may be one or a few rooms that would be available to them on those days, and their access card would only work for them on those days and for those rooms,” Groberg says. “They would be responsible for scheduling their appointments on those days, and they will be charged for the space on those days whether they use it or not. But they will be guaranteed that on those days, they will have an appropriate exam room available to them.”

Unlike medical timeshares, Viva MedSuites doesn’t require a long-term lease. A medical professional can cancel a contract at Viva MedSuites with just 12 weeks’ notice.

Historically, the medical office industry has catered to medical practices willing to rent at least 2,000 sq. ft. through long-term leases, according to Groberg. There was a dearth of options for small-scale practitioners needing less space.

“Usually, it means they either have to overcommit to space and then try to sublease out their unneeded space, or they have to sublease someone else’s unneeded space. Both of those situations create many unwanted distractions and challenges to both parties in the transaction,” Groberg says.

Groberg says he’s already lined up six or seven clients who are ready to rent space at Viva MedSuites, with interest expressed by more than 10 other prospective tenants.

Under the Viva MedSuites model, a medical professional is freed from the hassles of being a landlord, such as fixing internet connections and ordering office supplies, notes Michael Morton, principal of Medical Office Brokers in Scottsdale. From the tenant’s perspective, the Viva MedSuites model doesn’t force a medical professional to pay monthly rent when space is being occupied just a few days a week, he says.

“If the operator can make it profitable, it’s a win for all,” Morton says.

As for investors, a hybrid space like Viva MedSuites stands a better chance of making money than a traditional medical timeshare, in Morton’s view. Why? Because few occupants of traditional timeshares end up graduating to bigger spaces.

“Some landlords provide these spaces to attract tenants to eventually lease permanent space,” Morton says. “It doesn’t usually happen, though.”

Viva MedSuites is coming on-line at a time when the medical office sector is seeing weaker demand in the Phoenix area.

In the first quarter of 2017, the vacancy rate for medical office space in the Phoenix market averaged 16.0 percent, according to a report from Colliers International. That was up from 15.7 percent during the first quarter of 2016. Meanwhile, asking rents for medical office space were $22.66 per sq. ft. in the first quarter, up 160 basis points from the same period a year earlier, the report notes.

Colliers researchers write that following seven straight years of vacancy declines and against the backdrop of uncertainty over federal healthcare policies, the vacancy rate in Phoenix’s medical office market will likely go up by as much as 100 basis points in 2017.

“While tenant demand for space is forecast to remain fairly strong, this year is forecast to mark the most new construction since 2009, and the projects that are being delivered are spec developments,” Colliers report notes.

As Viva MedSuites competes for medical tenants in the Phoenix market, both Groberg and Morton say it should appeal to younger medical professionals, thanks to its co-working component.

“The old-school docs historically have a hard time with adapting to different operational methods and mingling personalities,” Morton says. “However, I believe the younger docs are more open-minded about office scenarios.”

Groberg says he’s been working with two other types of co-working spaces—executive suites and salon suites—since 2001. Through those experiences, he saw an unmet need for a co-working or space-sharing concept in the medical office sector. He views Viva MedSuite’s timeshare-co-working combination as an emerging category in the medical office sector.

“I’m not aware of many other types of space like what we are doing — that’s not to say there aren’t any,” he says.

Morton doesn’t think Viva MedSuites is a “groundbreaking” model, but he does think it has a place in the medical office market.

If the first Viva MedSuites performs well, Groberg says he’ll consider opening other locations in the Phoenix area.

Source: NREI