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Medical Offices, San Francisco, Post & Mason Streets

(NEW YORK, NY) -- The 15-million-square-foot medical office condominium market in the U.S. is softening but is still holding up better than most commercial properties, according to persons who regularly track the industry.

CoStar Group Inc. in Bethesda, MD notes there was 13,710,448 square feet of medical office condo space in 4,074 buildings available for lease or sale in fourth quarter 2008.

But by fourth quarter 2009, the numbers rose to 15,952,799 square feet in 4,550 buildings.

That suggests "there is much more space on the market available, which (also) accounts for the (sale) price declines being seen," American Medical News reports.

"If you don't have to sell, you can wait a little longer,"  lawyer Neil R. Shapiro, chair of the health care practice group at Herrick, Feinstein in New York City, tells AMN.

"Everybody is a lot more cautious than they were a couple of years ago," Shapiro adds.

Darren Lizzack

Medical office condos are "a small factor" on the broader commercial real estate scene but "in general, they are holding up very well," Darren Lizzack, associate vice president, NAI James E. Hanson Inc., New Jersey, tells American Medical News.

Additionally, Lizzack notes, "doctors are probably in better shape to qualify for financing" since "their (loan) default rate is significantly lower than a traditional office user."

Arizona, Florida and Nevada have the heaviest concentration of medical office condo projects, according to various industry sources and publications.

Kenneth Weston

In South Florida, for example, Kenneth Weston, president and CEO, Kenneth Weston & Associates, Miami, tells AMN the values of medical office condos have dropped about 25% over the last year.

"The whole medical office market is taking a little bit of a hit," Weston says.

"With (national) health care reform (expected), there are many physicians and other health care providers who are waiting to see how that is going to possibly be resolved," before participating in new leasing or purchasing deals.

Weston tells AMN his office statistics show the value of non-medical office properties in his South Florida market have declined about 50% over the last 12 months.  However, he doesn't believe they will stay that way for long.

Medical Office Condos, Scottsdale, AZ, Miller & Osborn Streets

"Everything in real estate is cyclical," Weston notes.  "I see a strong future for medical real estate, including medical (office) condos."

"But buyers should still beware," Weston tells American Medical News.

"Good deals abound, experts note, but with capital hard to access, some developers may not be able to turn an empty lot into an actual building in a timely manner, or at all."

The broker advises physicians to "assess future needs carefully.  The cost of owning a medical office condo can be comparable with leasing, but expanding or contracting will be more difficult with a space that has to be bought or sold.

"Those looking to buy should plan to stay in the space for at least five years.  If they plan to be there a shorter period of time, they are probably better off leasing."

Medical Office Condos, Spring Hill, FL.

Weston tells AMN "another key consideration is whether a medical office condo truly meets the unique needs of the health care setting, such as specially designed plumbing, cabinetry and elevators, as well as additional parking."

Although most industry watchers agree the medical office condo market has softened, "its (future) prospects are perhaps better than for other commercial real estate," Weston says.

"...Some (non-medical office) developers are shifting their focus to serve" the medical office industry "but they may not have the necessary know-how," Weston states.

Before the 2006 Great Recession began, Weston says he received few phone calls or other inquiries from convention commercial developers interested in converting regular office space into medical premises.

Now he gets about 10 inquiries a week.

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