The Future of US Office Includes More Medical Tenants

High vacancy rates in traditional office buildings are leading landlords to rethink tenant mixes, with medical tenants emerging as a viable option, as reported by GlobeSt.

According to a report by Colliers, medical office tenants have shown consistent growth since 2020 and are now filling spaces once reserved for professional office use.

Benefits and Challenges

Incorporating medical tenants offers benefits for landlords, including a steady, long-term income stream and a more diversified tenant portfolio. Medical tenants, once established, are less likely to relocate, providing financial stability in today’s volatile office market.

For medical practices, transitioning to traditional office spaces can result in lower rents, better concessions, and access to higher-quality facilities closer to suburban patients who no longer commute to cities.

However, these arrangements pose challenges:

• Infrastructure Requirements: Medical practices need additional plumbing, specialized electrical systems, and enhanced parking.
• Operational Adjustments: Building hours, after-hours access, and increased foot traffic may create friction with traditional tenants.
• Lost Networks: Medical practices may miss the organic referral networks found in dedicated medical office buildings.

The Bigger Picture

Suburban growth and distressed office building acquisitions are key trends facilitating the integration of medical tenants:

• Suburban Expansion: Medical practices are moving closer to patients who have shifted away from urban centers post-pandemic.
• Retrofits: Distressed office properties available at significant discounts offer opportunities for medical practices to purchase and retrofit spaces, increasing owner-occupied facilities.

Hybrid models are emerging as a solution, with landlords dedicating specific floors to medical tenants to consolidate infrastructure upgrades and minimize disruption to traditional office users.

Looking Ahead

“For traditional office landlords, welcoming medical tenants can be a strategic way to navigate a challenging market,” said Colliers. Success lies in carefully planning for the unique needs of medical practices while ensuring financial viability and tenant satisfaction.

The blending of traditional office and medical tenants could redefine the future of office real estate, balancing innovation with practicality.