How to Invest in Medical Office Buildings 

In the past years, seasoned commercial brokers have been encouraging real estate investors to buy into what has been deemed the most desirable asset – healthcare centers or medical office buildings. Due to the current climate, medical offices are crowned the supreme asset type by commercial real estate investors due to their resilience during market shifts, high occupancy rates, and a positive outlook – timeless and necessary. 

 There are several ways to invest in medical office buildings: 

• Healthcare Real Estate Investment Trusts (REITs) are one way for an average investor to enter the medical real estate arena. The investor purchases a “share” of the medical office building with a REIT, receiving dividends from the property’s lease. 
• Crowdfunding or joint ventures to purchase, build, or renovate medical office buildings is another tactic for investing. This process allows multiple investors to pool their resources and buy a medical office building. Often, these investors are more involved with the day-to-day operations of the process than REIT investors.
• High net worth investors or investment broker teams may choose to purchase, build, or renovate medical office buildings without outside assistance. This represents the greatest risk but holds the best potential for reward. These investors are solely responsible for the financial risk, meaning they receive all the profits.

4 Things Investors Should Know About Medical Office Buildings 

For investors deciding to buy in a medical office building directly, here are four things to keep in mind:

1. Three Axioms of Medical Office Real Estate: Location, Location, Location

Location is the top factor for medical office building investment. Here are some of the guidelines on selecting the prime location for a medical office: 

• Businesses on or near main roads with higher traffic counts and better visibility typically outperform businesses in other locations. 
• The property should be in a high-population area, where potential patients have easy access to the building. 
• The business location should offer ease of access and convenience for the patients. 
• Make sure the geographic location selected is prime for the target audience. “Sunbelt” states, like Florida, California, and Arizona, attract retiring Boomers and families seeking an active lifestyle. Investing in a medical office building in one of these locations is a smart choice as these areas have a higher need for medical care.
• In addition, prime locations are also more likely to attract higher-quality healthcare providers. Healthcare centers with top-quality healthcare providers are more likely to be a lucrative investment, attracting more patients.

2. Questions About The Size of The Building 

When purchasing an existing medical office building, the facility’s size is another crucial factor. Some key questions to ask regarding size are: 

• How many healthcare providers can the building hold?
• Is there adequate space for imaging technologies?
• Are there lab facilities on-site or the capacity to add them?
• How many patients does the waiting area fit comfortably?
• How many parking spaces are on-site?

Another issue related to size is the capacity to expand the facility. An existing medical office building that isn’t quite big enough could be expanded, providing enough space. Plans for future expansion of services may require additions to the structure or the construction of an additional facility. Buying a property that has room for expansion provides options for future growth.

3. Is it an Updated or Outdated Medical Building Design? 

Many investors found it worthwhile to buy outdated and affordable properties and convert them into medical office buildings a couple of decades ago. However, changes in medical technology requirements call for medical office buildings to be technologically advanced. Today, smart buildings are taking over the commercial real estate industry, and the healthcare sector is no exception.

Modern medical office buildings are more specialized and more digital than ever before. Along with advances and increased reliance upon technology, medical facilities need ways to save on costs like power and other utilities. This need has produced ‘greener’ medical facilities with super-efficient HVAC systems and LEED certification features.

Also, smart buildings are helping these businesses save on costs. Automated systems, for instance, can reduce heating and cooling costs exponentially. In addition, these systems can reduce costly repairs. 

An outdated structure that is not fitted for the latest medical, communications, and other technologies could require a significant investment to bring it up to standard. Although new isn’t always better, the physical environment should be concurrent with contemporary medical technology when it comes to medical facilities.

4. The Strength and Adaptability of Medical Office Structures 

Technology changes quickly. For medical office buildings to be successful, they must be adaptable. Modern healthcare is constantly evolving, so practitioners are best suited to structures that allow those changes to occur seamlessly. 

Here are a few types of flexibility important for medical office buildings: 

• Universal exam and procedure room sizes that can accommodate different purposes.
• Modular design is based on traditional planning but may use prefabricated construction methods.
• Replicable planning methods can be used at different scales of growth. 
• Incorporating technologies that support healthcare providers to serve patients virtually.

The Smart Investment Decision: Buying a Medical Office Building  

It is known that most restaurants don’t last more than a single year in business and retail stores’ survivability is based on e-commerce sales. However, Americans will always need healthcare – and more so as the population ages. Many commercial investors view purchasing medical office buildings as not only a safe and lucrative investment but the wisest investment. 

Why is Investing in a Medical Office Building the Smart Choice? 

• Medical properties generally produce a steady cash flow for the investors with longer-term leases than other commercial tenants. Medical office buildings usually have lower vacancy rates than other types of commercial properties due to the complicated nature of relocation. 
• The proximity to a hospital can produce a real advantage for a medical practice. The location makes it easy for hospitals to refer patients to private practitioners for all their medical needs.

Houston Market Outlook for Medical Office Buildings 

Houston has a robust medical office market. It is home to the world’s largest medical “city” – the Texas Medical Center. This campus sits on over 2 square miles of real estate, with more than 10 million patients visiting each year. This complex of hospitals, medical offices, and research facilities produces about $25 billion in economic activity annually.

Even more, Houston has a growing population that continues to age along with the rest of the United States. Therefore, the demand for high-quality medical care in the Houston metro area will remain strong. As a result, Houston’s medical office market outlook is very favorable.

The Need For Medical Office Space

Undoubtedly, Americans are getting older.

More Americans are over 65 than at any other time in history. Census data reports that there are 49 million retirement-age adults in America today. The number of Americans over 65 will double by 2055. Every day, some 10,000 Baby Boomers reach the age of 65.

It shouldn’t be surprising that they need more medical care as Americans age. 

Besides an increasing number of older adults, more seniors have access to medical insurance than ever before.

Today, an estimated 24 million Americans who were previously uninsured are now covered by the Affordable Care Act. As a result, having more insured Americans has created a higher demand for healthcare.

In response, there is a growing need for medical office buildings like micro-hospitals or urgent care clinics. Unlike many other commercial real estate sectors, medical office buildings are largely immune to the economic factors which affect retail businesses and restaurants. 

At Stratiq Capital, we specialize in successfully partnering with investors on their next big project. For more information and guidance on investing in medical office buildings, connect with one of our investment experts today.