JimKornick
WASHINGTON, DC--There is an evolution underway inthe medical office space that is similar to the competition, insome markets at least, between commodity A and A-plus office spaceand the trophy office space. The requirements expected of a medicaloffice building are becoming more sophisticated and these changesare creating a schism in the market between the older stock andwhat Avison Young has dubbed in a new report, themodern medical office building. “In the midst of the ongoingtransition in the healthcare MOB landscape, a sharpening of thelends on the modern MOB and the traditional MOB reveals differencesthat are striking,” according to the report “Evolution ofHealthcare and its Impact on the Real Estate Landscape in theUnited States.”Indeed, one doesn't have to look that far in thepast to see how much has changed for the medical office space. Atone time landlords of professional office buildings were hesitantto accept medical tenants due to a negative perception from otheroffice tenants. Even today certain tenants are deemed to be moredesirable -- namely those in “clean” medical practices such asophthalmology or orthopaedics -- compared with urology, dentistry,dermatology or urgent care practices and other practices thatproduce clinical wastes.But in terms of pure medical office spacethe main change of note is the trend of higher-acuity care beingpushed off the hospital campus, “transforming the MOB into a hybridform which integrates urgent care and ambulatory surgical careunder one roof, emulating a hospital setting without beds," thereport said.In short the new MOBs are more complex, learner,greener, more conveniently located, more digital and aestheticallymore pleasing than both the professional office building housingdiscrete medical practices as well as older MOBs.

Characteristics of the New MOB

Besides being prettier, the modern MOB has these othercharacteristics, Avison Young said:

  • Higher parking ratios than the traditional office building witha minimum of four per 1,000 square feet -- and as high as ten per1,000 square feet particularly in retail locations.
  • Wider elevators, corridors and entryways.
  • More stringent requirements and regulations such as higherceilings, at minimum 13 to 14 feet, to accommodate greatermechanical and electrical needs, air flow and exhaust. It will alsohave higher HVAC loads to deal with the extra heat produced by theequipment.
  • Larger floorplates and open, modular space plans that can beconfigured as needed.

More Investment

These changes are also spurring more investment in medical officebuildings, according to Avison Young Principal JimKornick. “They are actually attracting an increasingnumber of institutional investors -- foreign and domestic -- whoare competing with traditional healthcare REITs and privateinvestors,” for these assets.And, as always, the medical officeasset offers some compelling fundamentals for investors. Kornickpointed to their relative high yields compared to other assetclasses, a stable cash flow and high construction barriers toentry. “That is all keeping demand and pricing near record highsand cap rates near record lows,” he says.

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Erika Morphy

Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.