Traditional office buildings have increasingly been considering medical tenants for spaces historically reserved for professional office use, a trend that is reshaping both traditional office buildings and medical practices, according to a Colliers report.
The shift is tied to high vacancy rates in traditional office buildings caused by remote and hybrid work. Landlords are seeking creative solutions to backfill empty floors, said Colliers.
Medical tenants, the only office sector that has shown consistent growth since 2020, have been filling some of this void, but accommodating medical tenants has its own set of challenges for landlords including additional plumbing, specialized electrical capacity and parking requirements. In addition, building hours and after-hours access systems can pose challenges and some landlords and tenants worry about increased foot traffic and medical waste. Moving to a traditional office space also may diminish an organic referral network that occurs among tenants in dedicated office buildings.
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However, there are many reasons these arrangements make sense, including the steady long-term income stream provided by medical tenants, which are less likely to move as their practice becomes established, and a diversified building portfolio that is appealing in today’s volatile office market, said Colliers.
Medical tenants often benefit from lower rents, better concessions and access to higher-quality spaces, and traditional office spaces allow medical tenants to expand into suburban locations where they can be closer to patients who no longer commute into major cities in the wake of the pandemic and remote work.
Among the trends shaping the integration of medical tenants into traditional office spaces is suburban growth, reflecting broader shifts and lifestyle patterns, said the report. In addition, distressed office buildings have been available at significant discounts, which presents an opportunity for medical practices to purchase and retrofit spaces, increasing owner-occupied facilities.
Landlords are experimenting with hybrid models to address some of the challenges of incorporating medical tenants into traditional office spaces. This may include dedicating specific floors to medical tenants to consolidate infrastructure improvements and increase compatibility with traditional users.
“For traditional office landlords, welcoming medical tenants can be a strategic way to navigate a challenging market,” said Colliers. “Success depends on careful planning, from understanding the unique needs of medical practices to balancing financial viability with tenant satisfaction.”
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
