The state of healthcare real estate in 2020

The state of healthcare real estate in 2020

Medical practices still planning for long-term success - even in these uncertain times

Written by Matt Poncy, Leasing Agent (Plantation, FL)

The pandemic has had a drastic effect on commercial real estate leasing across the various market segments, including retail, commercial, office, hospitality, and medical. Landlords have adapted by flooding the market with incentives, such as free rent and increased tenant improvement dollars, to maintain and increase occupancy in an attempt to bolster and stabilize an asset.

Lease term is another key area undergoing a noticeable change. In the past, many businesses would consider a long-term lease in exchange for more favorable terms. However, the pandemic has led many businesses to secure shorter leases to remain flexible for the unknowns that lay ahead.

Medical office has been one of the more resilient commercial real estate sectors during the pandemic but has seen its fair share of shorter leases. However, there are plenty of practices still forging ahead with long-term commitments with full confidence their business will be successful in the present and in the future.

The long-term lease strategy can pay dividends as practices secure ample tenant improvement funds to build a modern office with the latest amenities designed to appease and provide comfort to their patients. Additionally, a longer lease will typically contain a lower starting rate and carry more tenant-friendly annual rental escalations.

Since the onset of the pandemic, Holladay Properties’ brokerage team has been able to facilitate several long-term new deals, as well as renewals across a variety of specialties. Several of the renewals include the tenant expanding to accommodate present day growth and in anticipation of patient influx.

Notable examples of renewals with an expansion include a 98-month extension and 1,211 square foot expansion for a pediatric practice in the Kendall, FL market. Expanding into the adjacent office will provide the practice with a total of 3,260 square feet, thus enabling the providers to see additional patients without adding greater stresses to the office.

The Miami submarket of Coconut Grove has also seen several practices enter long-term renewals and increase the practice footprint. Of note is an OB/GYN practice, that in 2018 increased in size from 1,776 square feet to 3,037 square feet. Today, the practice is growing again to keep up with patient demand. Holladay Properties was able to facilitate their growth by another 1,437 square feet, which will provide the practice with a 4,474 square feet office with beautiful views of Biscayne Bay.

Standard renewals, where the tenant remains in their current suite and simply extends the lease, have seen the biggest hit regarding average lease term. Due to the pandemic, many practices are now favoring a shorter renewal of one to four years to refrain from making a long-term financial commitment.

Despite this trend, brokers with Holladay Properties have been able to work with many providers to secure their location for years to come. Examples include an OB/GYN practice in Kendall, FL, which despite still having three years of term remaining on the existing lease, opted to extend the lease for 123 months, pushing the expiration date out until 2033. In exchange, the doctor was able to capture an abatement period as well as a large pool of tenant improvement funds from the building ownership to modernize the office.

Another notable renewal involved a national oncology provider extending its lease for 10 additional years. The practice desired to alter its suite to provide more efficient patient care and ownership was agreeable due to the arrangements of the extended term.

Lastly, new leasing activity, while remaining largely consistent and constant during the pandemic, has seen many providers hesitant to commit more than a few years at a time. Despite this, Holladay Properties has been able to provide stability to many medical office buildings with long-term commitments.

Of note is a new deal in Plantation, FL with suite construction underway for an orthopedic practice. A seven-year agreement has been finalized with terms mutually beneficial to both the tenant and landlord.

Another example took place as the pandemic was first being recognized as a threat in the U.S. when a long-term lease transaction was in negotiations. The prospect initially considered pulling the deal off the table, however Holladay Properties’ brokers were able to work with both the tenant and building owner to keep the deal alive and moving forward. For this, the internal medicine provider was grateful as the practice is now better positioned to provide care to the community.  The 8,903 square foot deal in Coral Springs, FL has the practice poised to remain successful well into the future.

The brokerage team of Holladay Properties has no plans to slow down as several other long-term deals are in the pipeline, including a seven-year new lease nearing execution for an ophthalmology provider to secure space for the rapidly growing practice, as well as a 10-year renewal for a surgical group in Coral Springs, FL.

Holladay Properties is a full-service healthcare real estate firm offering an array of services to medical office owners in capacities including brokerage, property management, construction management, accounting, and building engineering. Our clients include publicly traded real estate investment trusts as well as single building owners.

After many years of delivering results, our clients have full faith in our experience and expertise to drive optimal outcomes for their assets. Additionally, Holladay Properties’ brokerage team has worked with many providers as their tenant representative to secure them the best medical offices with the most favorable terms.

Whether you are looking for medical space or are in need of a reputable team to handle your medical real estate needs, Holladay Properties is ready to deliver results. Visit our Healthcare Real Estate page or contact a member of our brokerage team for more information:

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