Healthcare Tech Firms Are Taking Space

IRVINE, CA—Not only are healthcare providers absorbing more space in Orange County, but healthcare-technology firms are also becoming a significant tenant cohort in the office market here, JLL's SVP Jeff Ingham tells GlobeSt.com. The firm's first-quarter office report revealed that the healthcare industry continues to make gains in the county without any sign of slowing and that 20% of active tenant demand is stemming from the healthcare industry. We spoke with Ingham about the types of healthcare tenants that are absorbing this office space and how lenders view this tenant segment.

GlobeSt.com: What types of healthcare tenants are absorbing office space in Orange County?

Ingham: All healthcare systems are growing due to changes in population (the aging Baby Boomers) and Obamacare (everyone is getting healthcare). The supply of patients has grown significantly, and we have seen this growth not only here in Orange County but across the country where healthcare has really becoming a dominant force. Mortgage companies used to be the really big drivers in Orange County, and the market as a whole for mortgage has kind of fallen off a bit—a lot of refis, but not a lot of new loans. Lenders make a third on refis that they make on new loans, so mortgage business is not happening here like it used to. So, healthcare companies are expanding back into the mortgage-company space, not just care providers but administrative office as well.

What's happening is that care providers are trying to get closer to their customers and are trying to keep people out of the emergency room, which means that the clinical space is growing as a whole. It's not as profitable to be a doctor, and it's more difficult for doctors to wear the hat of doing back-office work—it doesn't make sense for them to do back-office, so many doctors are becoming part of bigger organizations.

There's also a lot of new technology coming into the healthcare industry to streamline and help make things more efficient, so the number of providers related to the healthcare industry is also growing. The demand for the most efficient, cost-effective healthcare is also driving the demand for space.

GlobeSt.com: What kind of space are they looking for in terms of size, location and type of building?

Ingham: The tech side is taking smaller spaces, while insurance companies and administrative firms are taking larger spaces—more than 100,000 square feet. Tech integration is smaller. Healthcare in some form or fashion is in all size ranges. I see providers wanting to get closer to where residents live. Hoag and St. Joe's have opened up clinics within office buildings kin order to get closer to employers and workers.

The healthcare industry is being proactive with health, rather than reactive. There's a focus on wellness as opposed to care; they want you not to get sick. The wellness piece saves the industry a lot of money as opposed to having more people in hospitals and in and out of the ER.

As for locations, some doctors want to be near hospitals because they spend a lot of time there, but a family-practice physician doesn't necessarily need to be there. It's almost like retail—you want to be close to the people who walk in.

GlobeSt.com: How are lenders viewing these types of tenants?

Ingham: Lenders generally have a positive view and are viewing healthcare as a better tenant type than the mortgage companies. It's much more stable employment vs. the mortgage industry, which is more interest-rate sensitive. There's a lot of credit within the healthcare industry as compared to the mortgage industry.

GlobeSt.com: What are the pluses for landlords to having healthcare tenants in their buildings?

Ingham: It's similar to any other tenant, although parking ratios is one issue.