The National Healthcare Reform legislation has reformed the way real estate fits into a physician’s business plan. Gone are the days of a single physician hanging his shingle, so to speak. With the Affordable Care Act, formation of Accountable Care Organizations and the high cost of Electronic Medical Records, physicians are looking at their future business plans and carefully considering either joining multi-specialty groups or becoming employees of a hospital system to keep costs efficient and focus on “practicing medicine”. For more time to consider today’s real estate options, many physicians are extending their current leases for one to two years so they are not over committed. Doctors are no longer buying their own office condos or signing ten year leases to cover the costs of higher-end medical office build-out. Their concern is about efficiency and cost effectiveness, and bottom line capital contribution.
There is a significant difference today in the demand between medical space located on hospital properties and those buildings located “off-campus”. As hospitals purchase medical practices and move them to their central and ancillary sites, the occupancy levels at these third party medical locations have climbed to over 90 percent in some markets. Landlords looking to attract physicians to their “off campus” buildings need to consider (1) large contiguous suites for physician groups, (2) parking of at least 5:1000, (3) rent concessions, excellent signage and (4) a tenant improvement allowance of at least $50 per square foot.
It is a tenant’s market. If physicians have solidified their business plans to locate or expand in Metro Phoenix, there has not been a better time to do so. In addition to a reduced rental rate, I recommend that physician groups seek at least one month rent abatement per year of term of lease, turnkey medical office build out, extra reserved parking and building signage as basic considerations.