How Medical Office Owners Are Landing Big Tenants

The medical office market is exploding throughout Southern California. With more activity comes increased competition for tenants—but landing a large quality tenants can be integral to the building’s success. Cypress West Partners recently secured a 12-year lease with Loma Linda University Health Behavior Medical Center’s MEND Outpatient Program at its Park Plaza property in Redland, CA.

“Securing an anchor tenant for a medical building is important to building the referral patterns within the building,” Jeffrey Johnson, a partner at Cypress West Partners, tells GlobeSt.com. “Once we secure the anchor, we can focus on searching for synergistic opportunities to round out the facility tenancy.  Helping to facilitate those relationships helps us to create a viable asset for both the community at large and our investors.  With a big brand secured it acts as a strong signal to the market of the viability of a medical use in this location and it serves as a catalyst for further leasing. Bottom line, providing an anchor tenant is priority one.”

The right tenant is based on building economics as well as the tenant mix. “We strive to create the right relationship for each asset in our portfolio,” says Johnson. “Striking the right balance between rental rates and aggressive TI packages is working for us in today’s environment.  Each tenant has certain needs and hot buttons – having the flexibility to meet their needs can separate options the user is considering.  You have to find the right dance partner to enter the competition.”

While demand is growing in the medical office sector—thanks to healthcare expansion—Johnson says that tenants are most focused on location. Specifically, tenants are looking to be close to community centers with access to rooftops. “If you have the right location and can be competitive in your lease rates and TI packages you can attract the right tenant,” he says. “Tenants are getting more and more sophisticated about which location they choose to operate a program in order to meet the demand, payor mix and patient experience.  Choosing a building that meets these will allow the asset to stand out from the noise. Healthcare facilities need to be properly located and built to a higher standard. The inability of landlords to meet TI requirements is a scarlet letter in the market.”

Even the best center in a great location, however, will see competition from other landlords. That is especially true in the Southern California market, where there is access to quality medical office product. “The best tenants have a line of people looking to associate with them,” says Johnson. “Having an understanding of the medical industry and speaking the same medical real estate language allows us to build trust with users and stand out from the high competition.”

Looking ahead into 2019, Johnson expects demand to remain strong. Already, tenants are signing larger and longer leases in the firm’s portfolio. “Medical continues to evolve and with change comes the need for real estate to meet those changes and therefore opportunities to attract new programs or evolve the real estate with the changing programs,” adds Johnson. “We don’t see an end to this anytime soon.  We feel that Cypress West is the market leader and the competition is trying to figure out what we’re doing over here.”