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Medical Office Building Market Information
Quantity and Quality of Supply:
In the U.S., more than 17 million square feet of medical office space was completed in 2008, up from the record 13.7 million square feet built in 2005, 13.2 million in 2006, and 13 million in 2007, according to Marcus & Millichap, a national real estate brokerage firm. These levels are well above the average 8.5 million square feet that was added annually between 2000 and 2004, a figure that was already historically high. This macroeconomic trend has been occurring on a smaller scale within the Eugene/Springfield medical office marketplace.
Medical practices have been able to upgrade from “woody walk-up” offices into mid-rise offices that offer better quality. In turn, practices located in the 1970s and 1980s vintage offices are updating and expanding into brand new offices, usually built to suit their specific needs.
In the years just prior to the late-2000s economic recession, several mid-size to large-scale properties had been constructed. Except for the largest facilities developed for practitioners that required close proximity to the new RiverBend hospital, most of the new medical office buildings are located in more suburban areas closer to where patients reside.
Developers, owners and tenants emphasized access to travel routes, building quality, and flexible configurations that could be repurposed as practice needs changed over time.
New development slowed significantly as market participants waited for economic conditions to improve. In 2011 and continuing to the present, small practices have resumed the local trend of renovating existing clinic space to like-new, or redeveloping existing facilities into new clinics that better suit their ongoing space and technology needs.
These properties are typically not being sold; rather, the original owners/developers have been holding on to these assets and their respective positive cash flow, which remained stable despite the economic downturn.
Location within the Market Area:
Baby boomers are changing what it means to grow older. What that means for medical offices is a demand for greater convenience in medical services. Boomers want medical buildings that have the warm look of a nice hotel, not the cold look of a clinic. And while they are expected to make more trips to the doctor for aging-related conditions, they will also be looking for ways to keep themselves well.
This trend is also a strong driver in the Eugene/Springfield medical office market, where medical practices are spending more and more for the best quality interior finishes, cutting edge technology to expand their service offerings, and finding locations that fit their patient demographics.
“Real-estate investors are increasingly interested in renting to doctors, given the lower vacancy rate and strength of the health-care sector during a slow economy. The medical-office market can be a safe harbor for investors…but it’s also “very fickle;” a building in the wrong place can end up empty.”
The chart and map outlines the medical offices over 10,000 square feet built since 2006. These properties were developed by owner and/or investor groups and the majority of the proposed space was pre-leased (or pre-sold in The Ten on Coburg) prior to construction.
Targeted marketing of vacant space in multi-tenant facilities enabled the developers to fill any vacant space as the buildings were constructed, so that by the time they were completed, the buildings were nearly stabilized.
None of these buildings has sold in a market transaction since completion, which can affect price for relative scarce supply of investment-grade properties available for purchase in the current demand environment for good-quality, stable income and returns.
. Smith, Scott D. “Study shows medical office space bucks industrial trends”, Minneapolis-St. Paul Business Journal. Jan. 10, 2003.