Market Monday | Medical Office
Commercial real estate is a dynamic industry that is mostly dependent on the viability of the industries that comprise it. When an area is doing well, commercial real estate has the opportunity to thrive; but where do you invest when the real estate market is turbulent? One sector of commercial real estate that remains steady and has the probability to stay consistent or grow is Medical Office. Why? Even in a down market, healthcare facilities and the spaces they occupy remain a necessity. While this stability benefits investors, a lack of available space can prove a challenge for medical tenants.
What does the data show?
Investing in commercial real estate can pose opportunities and obstacles that differ based on the type of commercial investment. When looking at trends in the market, data shows that medical office may be the best investment in Northwest Arkansas. Below we examine what makes medical office so attractive for investors.
Medical tenants build their book of business primarily by those living or working in close proximity. With that being said, medical tenants like the security of knowing their location will stay in one place for a long period of time. For an investor, this usually contributes to a willingness for tenants to sign long-term leases decreasing the likelihood of vacancy. In addition to being long-term, medical leases also tend to be NNN. Triple net leases are very investor-friendly as the tenants generate no expenses for the lessor.
When analyzing vacancy, medical office has a vacancy rate of 4.4%, the lowest of all property types in Northwest Arkansas. Office/warehouse is the nearest property type at a vacancy rate almost double that of medical office. This low rate shows a strong demand for medical space in our market. According to Jeff Cooperstein with Center for Business & Economic Research, “Vacant space has been stable even as new medical has been added, indicating to me strong demand for new medical space.” The Center for Business & Economic Research tracks over 800,00 square feet of potential medical space in Northwest Arkansas and has seen the vacancy rate fall fall from 4.5% to 4.4% throughout 2020.
Overall, medical office is proving to be one of the most stable investments in Northwest Arkansas. From the quality of the tenants to the low maintenance leases, there are many pros to investing in medical office. Recently, the commercial real estate market as seen some turbulence, but medical office has remained a great opportunity for those looking for long-term returns.
If you are looking to invest in medical office or for any other commercial related properties, please contact us at (479) 271-4161.