This is Jonathan Aceves wth Meybohm Commerical here with a brief update on the Medical office market. Click here to download the Report.
Overall, well-located and in good condition, medical office space in Augusta is leasing for around $18/SF, and selling for around $150/SF. As expected, offices in Evans commanded a premium (around $200/SF), and offices around Trinity sold at a discount ($120/SF). This is slightly higher than standard office space, and tends to be clustered around hospital facilities: University, Doctors, AU Health, and Trinity(University Hospital Summerville)
One outlier that we see is with the rise of Urgent and Prompt Care clinics, which tend to lease in line with NNN leased retail space. We are seeing them leasing at around $30/SF NNN and trading at corporately-guaranteed retail cap rates. There has definitely been a rise in Medical/Dental/Physical Therapy providers taking space in shopping centers and even developing practices on retail out-parcels. The impact is that these lease rates fall in line with their competitors for these spaces.
POB Buildings. The POB buildings are a good milestone–what would it cost a physician to locate inside the hospital complex, with a full-service lease? Asking rates there tend to be around $25/SF Full Service, potentially you could lease space there between $20-21/SF. If we back out the full-service items, it’s a helpful comparison. That might get us to a rate around 18/SF.
Renovation of office buildings. Another helpful number is what would it cost a physician or dentist to purchase a 4000 SF building and convert it to a medical practice? Our guess is that in good condition, it would cost around $25/SF. so in theory an office building could be purchased and 100-150K invested in it to make the conversion. Alternatively, an office could be leased, and the improvements amortized into the rent, which would equate to 4-5/SF/YR on the rate. At those numbers, it is slightly more cost-efficient to lease or purchase an existing medical office than to convert an office building into a practice (which makes sense).
On a related note, we are seeing a large demand for purchase of NNN leased medical office space. If you own a practice and the real estate, it may be a great retirement planning tool to investigate the value of leasing back the building and selling the real estate. Also if you are selling your practice or looking towards retirement, it might be a good idea to sell the practice along with a lease on the building, and then sell the leased building. That may be a great way to cash out of your investment and give your new partners a fixed and budgetable cost.
Augusta GYN sold their building earlier this year to University Hospital.
Pruitt Health. 12.60/FT, Modified Gross. 1220 Augusta West Parkway.
Thanks for reading! Please let us know your thoughts on the market for medical office buildings. What are you seeing? What’s your experience been?