Tenants and buyers of health-care real estate need to act as health-care reform and an aging population create new demands for Tucson medical office space.
Could Tucson, Arizona, be poised for a boom in medical office building (MOB) activity? The leasing and buying of medical office space has been one of the brighter spots in a flat commercial real estate market. Anticipated demand from an aging Baby Boomer population and the reforms that give more people access to affordable health care will create an immense demand on medical services.
That in turn will accelerate the need for medical office space. Tenants caught unaware will end up paying premium lease rates for a shrinking inventory of commercial real estate.
We at Commercial Real Estate Group of Tucson have seen some recent activity that might predict what’s to come. Tucson Medical Center and El Dorado Hospital have continued to see absorption of vacant space and TMC is going ahead with plans to build a 60,000-square-foot MOB.
Eleven of the 40 select top office leases this year as identified by the CoStar Group were related to health-care services. They represented nearly 52,000 square feet of medical office space.
Trends in Medical Commercial Real Estate
There’s lots of talk about the trends affecting medical office space. Here’s some that we think will occur in Tucson over the next decade or so:
Medical office space absorption grows. Growing demand for health services will require more places for doctors’ offices, labs for preventive tests, ambulatory surgery centers and hospital beds. That will help absorb some of the small supply of medical office space that’s vacant and readily available.
Other commercial real estate converts to medical facilities. For some landlords and tenants, an attractive option is to improve vacant retail space to accommodate health-care services. Residential real estate could turn into assisted living facilities. Land formally designated for residential development could be turned into assistant living facilities, which hold more value than homes.
Hospitals become hubs for doctor employees. The current health-care law greatly restricts physician-owned hospitals. That may make other types of hospitals giant hubs for MOBs that house doctors who become employees of the hospital.
Medical facilities move to outlying communities. Services not connected to acute care will locate on campuses within communities as an economical and convenient way to provide health care to the people who need them.
Health care real estate ownership grows . Real estate investment trusts (REITs) have begun to add in-patient and out-patient medical facilities to their portfolios in anticipation of the sustained demand. Medium- and large-size physician groups are considering owning their own buildings as goods investment to supplement their practices.
Shrinking Medical Office Space Demands Action
Demand for medical office space will certainly heat up as provisions of the reform law are slowly implemented through 2014, barring any wholesale changes.
We strongly recommend now is the time that health professionals and site selectors should ask a tenant representative to help them
- consider the law’s implications on their businesses and practices
- assess where to best position themselves
- weigh whether ownership is a good alternative to leasing
- lock in today’s rates with a good long-term lease before landlords start charging premium rates
- familiarize themselves with medical commercial real estate that will become available as demand spurs construction that had been on hold.
Commercial Real Estate Group of Tucson specializes in representing tenants and corporate users across the United States. For more information, call 520-299-3400.