The Opportunity of Office to Medical Space Conversions
Traditional office spaces, once bustling hubs of professional life, now echo with emptiness. In the wake of the global pandemic, U.S. office vacancy reached 20%, according to a Jones Lang LaSalle (JLL) report. This number excludes the staggering 30% of office spaces that are estimated to become vacant by 2026. Nevertheless, healthcare real estate investment reached an all-time high in 2022, showing opportunity for empty office spaces to be repurposed as medical office spaces.
Medical office spaces offer patients the convenience that hospitals cannot. With roughly 10,000 of the 75 million baby boomer population becoming retirees each day, there will likely be an influx of senior citizens seeking a local, one-stop destination for routine health care services in the future. Additionally, as fewer people are eligible for health care coverage, and with Medicaid enrollment projected to experience a steep decline, medical office spaces can help close the health care gap.
Not only do converted medical offices offer a lifeline for patients in need. They present new opportunities for owners of traditional office buildings. According to a Colliers health care service report, average rents for medical office buildings in 2022 increased to $23.06 per square foot, representing a new high for the sector.
Despite the advantages of medical office spaces, there are drawbacks investors should be aware of. Medical office buildings cost roughly $498 per square foot to build, compared to $313 for traditional office spaces. Even if an investor has the capital to cover the cost of building a new space, beginning construction comes with challenges (e.g., unfavorable zoning laws). Additionally, the increased popularity in telehealth could render the need for outpatient facilities obsolete in the coming years.
Though there may be disadvantages, developers looking to inject diversity into their commercial real estate portfolios should consider medical office spaces. With health care revenue projected to reach $86 billion by 2027, medical office buildings present a strategic alternative to the declining commercial office market.
Levin Ginsburg is a full-service law firm that can provide counsel on commercial real estate matters. If you have any questions about converting office spaces to medical spaces, or any other commercial real estate topic, please contact Camila Kaplunov or call 312-368-0100.
