Medical Real Estate

By Steve Barrett
Friday, November 1, 2019

The Physician Shortage and Medical Real Estate

The looming physician shortage poses challenges to the medical real estate market and calls for a nimble response from providers and the real estate industry alike.

That was a key takeaway from Bisnow’s National Healthcare West conference in Los Angeles.

The shortage could rise to more than 120,000 physicians by the end of the next decade, according to estimates by the Association of American Medical Colleges, and that could shrink areas of the market including medical office building development and office leasing, notes Bisnow, a commercial real estate-focused publication.

John Pollock, CEO of California-based real estate developer Meridian, says development will have to be responsive to evolving ambulatory outpatient models to address the shortage and ensure efficient delivery of care.

“A lot [of efficiencies] will have to come from the physical spaces where health care is delivered,” Pollock tells Bisnow.

The Value of Scrutinizing Real Estate Leases

Carefully vetting a commercial real estate lease can avert financial and legal headaches, according to Caitlyn Helsen, MS, Project Manager at Philadelphia-based Watchdog Real Estate Project Management.

In a blog post, Helsen says key questions to consider include:

  • Landlord responsibilities. Fully understanding the landlord’s obligations allows the tenant to budget accurately. “We certainly don’t want to double count any of those items that the landlord has agreed to provide,” Helsen says.
  • Tenant improvement allowances. This funding, provided by the landlord, may have time restrictions that the tenant should bear in mind as a project moves forward.
  • Construction process restrictions. Leases may include rules about construction vendors. Reviewing those restrictions helps the tenant remain compliant with the terms of the lease.

Trends Propel Medical Office Building Market

Economic and demographic trends favor the continued health of the medical office building (MOB) sector in coming years, according to BBG, a Dallas-based commercial real estate valuation firm.

The company cites several factors driving the strength of the sector, which accounted for well over 20 million square feet in the U.S. in 2018:

  • An increasing need for care among baby boomers
  • The view among healthcare systems that these properties may help reduce costs
  • Greater interest among investors
  • Millennials’ desire for convenience

“The current strength in the medical office property market is the direct result of the nation’s healthcare industry shifting to a more efficient model of providing an improved patient experience while reducing overall operating costs,” BBG CEO Chris Roach states in a news release regarding the market for MOBs. “We anticipate that this trend in healthcare delivery will keep market valuations for these properties at attractive levels in the foreseeable future.”