Medical Buildings
Medical professionals occupy a variety of healthcare properties. The most recognizable types are hospital campuses, office buildings, medical offices, and retail healthcare facilities. Considering anticipated growth within this sector, healthcare professionals might wonder if it’s best to lease or own one of these properties. There are advantages and disadvantages to both sides. Each practice should carefully review its options before making a decision. Below, we’ve outlined a few pros and cons to leasing vs. buying a medical building:
The Pros of Leasing a Medical Building
Medical groups and properties come in all shapes and sizes. Smaller medical groups or physicians opening new practices may prefer to lease a facility. Leasing is especially ideal for physicians who would like to open their practices on campuses of larger health systems.
Leasing a medical property is also a safer route for medical groups who cannot afford an additional expense on their balance sheet. Since medical practices typically face high start-up costs, buying a facility is not always a viable option. In these cases, physicians can lease properties in markets that will allow them to grow their practice and raise capital. As lessee, they don’t have to handle costs related to building maintenance. They also have the advantage of testing a market, and if necessary, they can change locations when their lease is up.
The Cons of Leasing a Medical Building
While leasing may be a necessary option for some medical professionals, it isn’t always the ideal option. Rent rates increase over time, often annually. And in addition to the rent rate, the initial buildout costs can be extensive.
Because of a limited budget, some medical professionals may have to settle for spaces that aren’t ideal for growth. Each market differs, but a particular market may not have large facilities with affordable rent rates. In these cases, medical professionals will have to plan a lease time frame that reflects their immediate future. But they will likely need to plan on eventually moving locations to accommodate long-term growth.
The Benefits of Buying a Medical Building
Physicians or investors may choose to buy a medical building to gain a valuable asset. Their capital goes toward the eventual ownership of the building rather than a landlord’s balance sheet. And because they aren’t paying rent to a landlord, they also avoid annual rent increases.
Owners of medical properties can also lease unused portions of their properties to other tenants to earn additional capital. Medical tenants typically have a longer lease time frame. So, as landlords, they won’t have to worry about a high tenant turnover rate. And eventually, the building owner can sell their building and benefit from the equity.
The Cons of Buying a Medical Building
Buying any piece of real estate can be a risky investment. Markets fluctuate, which can impact the financial stability of the property owner. If they choose to host tenants, they may also occasionally find themselves in a lengthy tenant search. Filling a commercial vacancy can take a substantial amount of time.
During an economic downturn, owning a commercial asset like a medical facility can hurt the bottom line. In the case of a financial issue, building owners will have to make the difficult decision of whether to sell or engage in a sale-leaseback.
Leasing vs. Buying
Each practice has a unique financial history and specialized property needs. Medical groups that are considering either option should outline their property goals and contact a medical real estate advisor.
Medical real estate advisors have experience and skills specifically tailored to healthcare real estate. They offer services that guide each medical group toward which decision is best for their practice. They can also assist with related details involving medical real estate legislation and structural requirements. HBRE’s team of medical real estate advisors collectively offers decades of experience for their healthcare clients. Healthcare teams looking to lease or buy medical real estate can reach out to HBRE with questions about their specific practices—[email protected].
If you are interested in learning more about investing in commercial real estate, or if you have questions about buying, selling, or leasing a commercial property, please contact an HBRE advisor. Our team of experienced CRE professionals have the skills and insight to assist with all property transactions. To reach out to us directly, email [email protected] or call 615-564-4133.
