Over the past few years, change has been inevitable in the commercial real estate space. The pandemic and resulting recessionary period proved to real estate professionals that no industry or asset class is fully recession-proof. However, investors are turning to medical office spaces for a variety of reasons, bringing increased competition in the healthcare real estate industry.
Let’s explore the main factors driving the increased competition for medical office real estate.
Lack of Space
One factor contributing to the increased competition in medical office real estate is the lack of growth in on-campus medical office buildings. This has resulted in the need to build or occupy a space elsewhere. And while new office buildings are being built across the country, many of these properties are being used for retail stores or multi-family housing and are not specifically designed for medical offices.
Without access to greater expanses of land for new medical offices, there has been lower supply and increased demand.
Fewer Resources for Building out New Space
Another factor contributing to this competitiveness is that there are fewer resources available from tenants and health systems to build out, even when space is available. These resources can include both capital and time.
Because of this, if a tenant is looking for an office space with four exam rooms and finds one that has three exam rooms but meets all of their other needs, they will oftentimes take the three exam room option because it is what is readily available. This will help increase profits in the short term rather than spending more capital and time building out something that is only slightly better suited to their needs.
Increased Investor Interest
Given their unique building and tenant profile, medical offices have been historically overlooked by many real estate investors. But since the onset of the pandemic, medical office real estate has come into high demand as healthcare services have increased, allowing healthcare real estate to continue to perform well despite the unpredictability of the economy.
As more investors look to diversify their portfolios into more stable asset classes, the competition for medical offices has increased.
Healthcare Real Estate is More Reliable
What investors found when turning to healthcare real estate was increased reliability during an unpredictable economy. Healthcare real estate is more recession-proof than other asset types and is highly occupied with sticky tenants.
With the overall lack of space and resources for new construction, as well as the increasing need for more medical services, competition has skyrocketed in the medical real estate space. It is expected to continue to be an attractive asset class, potentially even emerging as a separate class all of it’s own.
About HBRE
Headquartered in Nashville, Tennessee, HBRE is a full-service commercial real estate firm specializing in healthcare real estate. With over 50 years of combined industry experience serving 28 states across the U.S., we deliver exclusive healthcare solutions so you can provide the best patient care.
If you have any questions about leasing, buying, or selling a commercial property in Nashville or beyond, connect with our team today.
