After Initial Pandemic-Induced Challenges, Outlook Is Healthy for Medical Office Sector
During the initial months of the pandemic, the medical sector faced its fair share of challenges.
Job losses were on the rise, as some medical practices were forced to shut down temporarily. In all, there were 1.4 million healthcare services industry jobs cut in the first two months of the pandemic.
Vacancies also rose, peaking at nearly 9% nationwide.
But the sector recovered quickly – and at a much faster rate than traditional office – and long-term trends are on a healthy trajectory.
According to CoStar, nationwide vacancy rates in the medical sector are near decade-long lows, while the construction pipeline is extremely limited (less than 1% of total inventory). Healthcare trends are also favorable. Demand for services is picking up as patients schedule elective office visits and procedures that were postponed during the height of the pandemic. In the long-term, the aging of the U.S. population will drive demand for services that will, in turn, boost the need for medical space.
Kevin Ehringer, Vice President for Ackerman Medical in charge of leasing Ackerman & Co.’s portfolio of medical office properties in metro Atlanta, said he has been seeing robust demand for space, particularly in recent months.
“At the outset, healthcare practices were dealing with various issues caused by the pandemic or had to shut down temporarily – dermatology, ophthalmology, dentistry to name a few,” Kevin said. “Things are pretty much back to normal now. Primary care and specialty practices are going gangbusters.”
The heightened demand for space is reflected in recent statistics. According to CoStar, medical office space leased monthly has surpassed the five-year average for the past six months.
Ackerman is seeing solid demand for its medical office availabilities. The company, which has developed and acquired more 3.5 million square feet of medical office space since its inception, has been consistently completing leases with physicians and healthcare practices.
Recent leases Kevin has completed for Ackerman Medical include a 7,669-square-foot lease with Schilling Cosmetic Surgery & Aesthetics at 1050 Eagles Landing Parkway, a 3,320-square-foot lease with Avail Dermatology/Epiphany Dermatology at Prestige Park and 1,452-square-foot lease with Regenerative Spine & Pain Specialists at Prestige Park. Some of his major lease renewals include a 9,057-square-foot deal with Georgia Urology at Marietta Medical Center.
Although demand is strong, Kevin pointed out that snowball effects brought about by the lingering pandemic have led to one increasingly common criteria among tenants seeking space.
“Medical practices want built-out, turn-key space, rather than shell space that needs to be planned, engineered and constructed,” he said.
The increasing costs of construction materials, access to those materials and labor shortages, along with delays in permitting, inspections and other municipal approvals are some of the issues tenants can avoid by moving into turn-key space.
The type of build-out space tenants are seeking are currently available at several Ackerman & Co. medical office properties, including the 58,317-square-foot 1050 Eagles Landing, 41,450-square-foot Prestige Park, 98,534-square foot Marietta Medical Center and at Perimeter Town Center, an Ackerman redevelopment.
While the ongoing pandemic and current economic uncertainty are creating challenges for all commercial real estate sectors, the medical sector is proving to be resilient and is expected to benefit from healthy long-term growth prospects.