Auletta Reports on Evolving Medical Office Market
Technology, Convenience, Aging Population Driving Factors in changing market.
Tari Auletta, CCIM of Tucson Realty & Trust Co. participated in a recent symposium, Medical Facilities: Meeting Evolving Demands, hosted by Tucson CREW. Here are some highlights from her talk.
Market Trends:
There was a time when Doctor’s offices were all located in Medical Office Parks, such as Tucson Medical Park, El Dorado Medical Plaza or the traditional single medical office buildings. If you got seriously ill or hurt you went to the Hospital Emergency Room… and waited for hours to be treated. Today you no longer have to go to the Hospital Emergency Room, now you have the convenience of going to a nearby neighborhood Urgent Care facility and spending half the time waiting to be treated.
Now there are small Medical Office buildings and Condominiums – all over town, such as Swan Corporate Center, Camp Lowell Corporate Plaza, Swan Plaza, La Cholla Corporate Center, just to mention a few. Many doctors have moved their practices out of the aging traditional Medical Parks and buildings that they had leased for years to purchase new more functional cost-efficient buildings and because the construction loans were so available. Historically, when Doctors located in a particular area (development) it would attract other doctors because of the advantages of the close medical associations and the efficiency of inter-office referrals.
Trends in re-purposing and use of small medical facilities:
We are seeing a move away from traditional single medical office buildings or medical parks. Urgent Care buildings and Surgery Centers popping up on corners all over town. They are located in former Bank Branch buildings, old video stores, vacant convenience stores and older office/retail buildings. Converting an office building into a surgery center is a very expensive process but the doctors will be able to control their work load and their costs.
Dental practices, medical branch offices, physical therapy offices – just to name a few practices – are moving into well located neighborhood shopping centers across town. Retail centers offer cost-effectiveness together with excellent signage, ample close parking for aging or handicapped patients and again, neighborhood convenience. Not to mention the day-to-day pedestrian foot traffic from the other tenants in the center.
As the medical office market continues to improve we will be seeing older office buildings being remodeled to create new high-tech, cost efficient properties. Many of the older medical complexes have seen more allowances by the Association or CC&R’s for changes in the use. Business such as bookkeeping services, counseling, laser skin care, just to name a few are moving into the complexes. However, if the location is sound and the re-purposing/remodeling costs exceed new construction costs, old medical buildings will be demolished and will be replaced with new state-of-the-art medical office buildings.
Pricing for Small Medical Facilities:
The pricing for small second/third generation medical buildings can vary in Tucson but most fall in the range of $150 – $250 per square foot. This may seem like quite a contrast, but age, location, number of exam and procedure rooms, parking, signage, are all taken into consideration when pricing out a small medical office building. Recently a medical building on Wilmot built in the 70’s sold for $70 per square foot and a medical building in Foothills built in 2002 sold for $220 per square foot. There are many differences between medical office space and standard office space pricing. Construction costs for medical office buildings are much more expensive along with the interior improvements primarily caused by doctor’s demand for extensive plumbing, numerous restrooms, examination rooms and cabinetry.
The purchasers for these small medical buildings are typically doctor/users and partnerships. Investors are also buying them and leasing them to private practitioners if they can get the right return on their investment.
Near-term projections for small medical facilities:
With the new high-technology required today it is harder for the older small medical buildings to compete and will have to be “re-purposed’ to stay in the game. Doctors are looking for cost-efficiency and will relocate to other alternative locations that provide the state-of-the-art format they need.
In conclusion:
I believe that we will continue to see a need for both small medical practices and small office buildings along with the large managed care practices and medical buildings, especially with the predicted volume of medical services anticipated between now and the next 10 years. This is an exciting time to watch as the transformation begins.