Please, Somebody Call a Doctor! Investing in Medical Office Space

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There’s a saying “the only sure thing in life are death and taxes”.  Though that’s true, there’s another, “people will get sick”, and in turn will seek out medical care. As real estate investors, that can be good news for you.

Why? When physicians and other medical professionals lease office space, it’s a serious financial commitment. How many times have you gone to see a top notch “specialist” and when arriving at their office wonder why someone with such impressive credentials and reputation is tucked away in a less than modern building? Whether we like it or not, looks do matter, and patients like a doctor’s office that is modern, spacious, and puts them at ease.

Much of the reason physicians choose to stay in outdated space is due to the costs involved with moving their practices. It takes a serious financial commitment. However; once a physician makes the decision to move, they usually sign long term leases, and stay in their space for many years.

Those same reasons are why medical professionals should consider investing in their own space. If a physician is going to make the commitment, for multiple years, to a real estate contract they should consider investing in their own space.

Related: Medical Office Buildings, The Perfect Storm!

Whether a condominium unit, or a medical office building, if the new space is located in close proximity to a major hospital, it can be a win/win situation. Not only does it allow a physician to control the costs of their space, and use, there’s additional potential for future earnings from real estate appreciation. In addition, when a physician retires, owning their space, they can then lease the space out to another medical professional, providing them with another source of retirement income.

Commercial real estate statistics show that even during the turbulent real estate market, the delinquency rate for general office space was around 9.2%, compared with 3.3% for medical offices.

Whether you are a real estate investor wanting a property that will be in high demand, or a medical professional wanting to invest in your own space, consider investing in medical office space.

About Author

Karen Margrave

Karen is a partner in a family owned real estate development company, in Orange County CA. The company specializes the building spec projects (SFR, MFR, Medical Office, and other types of properties), designed to meet the needs of both investors and owner/users. Licensed in both real estate and construction.

11 Comments

    • Good blog Karen,
      Office space can be a great investment but the tides are changing in
      terms of physicians. Due to the healthcare environment, less physician
      are selecting private practice. Many in private practices are being
      bought out by large groups and/or hospitals. For the future, I see
      little if any private practice given the healthcare environment.
      Therefore, from a real estate perspective, few if any physicians will
      be looking to purchase their buildings because they will be employed
      by others instead. These decisions will no longer rest with the
      physicians themselves. Just my thoughts, hope it helps. Thanks.

      • Leng – In a previous blog on Medical Office Space, I went into what you are describing, you might want to read that too, as well as do some of your own research. Though many physicians are moving away from solely having their private practices; and are becoming affiliated with hospitals, that doesn’t lessen the need for medical office space, but in fact increases it. As major hospitals and medical centers begin to take on more specialization, and hire physicians for those services, rather than having them in their hospital buildings taking up space, the hospitals purchase space “off campus” in which to house those services.

        As for the healthcare environment, as my blog states, people will ALWAYS get sick, that’s just a fact of life. As the Baby Boomers age, they are driving the need for MORE medical services, to treat existing conditions, as well as services to maintain and improve their health. With 10,000 people in America turning 65 each and every day, I don’t see that demand lessening, but increasing.

        In addition, many physicians are merging together from single practice business models, to create medical groups, requiring larger offices, buildings, etc.

        As with everything the devil is in the details. High quality medical office space, close to major hospitals is in extremely high demand, and in my opinion is a good investment opportunity now, and for years to come.

        • P.S. This week I’ve had calls from physicians wanting more information on purchasing a condo unit, and next week we have meetings with a group of doctors considering purchasing the entire building. Maybe you ought to look at southern California!

    • Actually, I do. As the blog post states, with 10,000 Baby Boomers reaching age 65 every day, and moving into their retirement years, while aging, they will get sick. There’s just no getting around it, with or without Obamacare.

  1. I was doing due diligence on building an urgent or immediate care office space last week. I found one that was only about 1500 sq-ft simple to build so I started taking pics. The office manager came out wondering why I was taking pics, and starting telling me about all the time she spends fighting with insurance companies and clients for payment. They are waiting to see what Obamacare does in 2014. The banks will not lend them money due to the skepticism to this reform. I gave them my card in case the can find a loan, the said investors are not even interested. . I walk away discouraged, seems like a bad time for this venture.

    • Terry, I don’t know what area of the country you are in or any of the details. However; I do know that as with any type of property, one of the major factors influencing success is LOCATION, LOCATION, LOCATION. In addition, the specifics of the market. What is the current supply of medical office space available for such a venture, and what is the demand? Obviously if a market is already built out and there is no demand for medical office space, you don’t want to build a medical office building. On the other hand, if there’s a demand for well located, new, medical office space, then I’d do it.

      As for the employee of the clinic saying they were having issues with billing, you have no idea if she is qualified to do her job, or what other factors might be playing into her problems. I certainly wouldn’t base a decision on whether or not medical office space is a good investment based on an employee of a tiny walk in clinic; and the conversation she had with you out in the parking lot, based on her opinions.

  2. Karen – hello. We have a medical building in Philadelphia that we are trying to sell. Is there some way of figuring out the best agents in the medical space? or the potential hospitals that may be interested in an off campus location? Thanks.

    • Agnih, I am not familiar with your market. You might want to list it on Biggerpockets, in the forum titled “Marketplace”. Also, try going onto LoopNet, and see if there are any commercial listings on there that are in your area. Also, look in the local newspaper classifieds and see which commercial agents advertise and seem to be aggressive.
      Do you have a local Colliers, or Coldwell Banker, etc.? Google Commercial Real Estate Philadelphia and see what offices come up. Also, google Medical Office Space Philadelphia. By doing that you will see if there’s any agents working that niche. Did you want to try to sell it yourself or with an agent?

      Good luck! Message me through Biggerpockets if you have any other questions, or post here and I’ll be notified 🙂

  3. A lot of people forget that when they are paying a price for a service, a large portion of that fee goes to paying a lease. For example, at a restaurant, the cost of the building is higher than the ingredients. Where medical offices are in high demand, I agree with the article that they would be a great investment option to pursue.

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