The Latest Trends, Surprises and Challenges in the Los Angeles Healthcare Space
Despite the fact that the healthcare industry is growing rapidly, there is a surprisingly lack of new construction in medical office buildings in L.A., according to JLL’s Bryan Lewitt.
LOS ANGELES— The only new development in the L.A. medical office arena is large build-to-suits with 60 to 90% pre-leased. That is according to Bryan Lewitt, JLL Managing Director and Southern California Practice Leader for the Healthcare Services Group, who recently chatted with GlobeSt.com about all things Los Angeles healthcare related. Check out the Q&A below to learn more.
GlobeSt.com: What were the biggest surprises in the Q2 LA healthcare stats?
Bryan Lewitt: My biggest surprise is the lack of new construction in medical office buildings. Although the healthcare industry is growing rapidly and is now 18% of GDP real estate developers are very disciplined. They require high pre-lease conditions before they will build spec. Therefore, the only new development is large build-to-suits with 60 to 90% pre-leased.
GlobeSt.com: What were the biggest trends that you saw in the LA healthcare real estate in the first half of the year?
Lewitt: The biggest trend is how steady this sector is. There is very little loss of vacancy and absorption is very steady at less than 10% throughout almost every sub market in Los Angeles. Also large blocks of contiguous space are very rare in most buildings. I predict landlords not retaining small tenants to create large blocks of space in order to accommodate larger tenants in this consolidated industry. This allows landlord’s a substantial credit enhancement as well as it easier to manage the buildings with less tenants.
GlobeSt.com: What are some of the challenges that healthcare companies are having currently when it comes to their real estate?
Lewitt: One of the biggest challenges is for healthcare companies to create socially distant conditions with their clinical space. For example the need for larger waiting rooms and more Covid free conditions are needed. They are forced to comply with new protocols to keep their patient’s safe. Additionally like the office sector healthcare companies back office space needs to be changed. Therefore, workplace strategy will have to be implemented to make their offices efficient to compete with the other healthcare systems.
GlobeSt.com: What are some of the new trends in LA healthcare real estate that you are watching?
Lewitt: One new trend is for major healthcare systems desire to own their real estate instead of leasing. At this point, many of the nonprofit systems hover around 3% profit each year. They are aware of the value of real estate which is a lot more than 3% annual, therefore, they consider these large new location commitments an opportunity to better their mission by owning rather than leasing. They are investing so much money into tenant improvements, FFE and employee salaries that leasing does not make sense if they can purchase.