Demand Calling for Taller Medical Office Buildings
Houston is the No. 1 market for these buildings and that Texas is home to most of a top 20 list.
Look up. Medical office building developers are sizing their assets much taller.
Given the growing number of seniors requiring health care and the accelerated population growth of some metros, providers are requiring larger, specialized facilities to expand their capabilities in key areas, according to a report by 42Floors.com.
Houston is leading the way with 2023’s largest medical office building delivery at 400,000 square feet across 12 floors: The O’Quinn Medical Tower.
It is home to four other medical properties among the 20 largest nationwide — the highest concentration of any metro nationally.
Columbus, Ohio, and St. Louis are developing the second and third-largest buildings.
Six properties in the top 20 are in Texas, followed by two each in New Jersey, Florida, and Kentucky.
Land Cost Drives Incentive to Go Big
“Due to the cost of land being so high, there’s an incentive to build larger office buildings,” Peter Hays, Practice Real Estate Group’s senior vice president and Houston agent, tells GlobeSt.com. “Buying a smaller piece of land and constructing a small building can be too expensive in comparison.”
“Given the rapid growth rate of Houston, the land is quickly disappearing. Businesses and medical groups know what’s happening and are acquiring what’s left in anticipation of being able to eventually develop or sell it for a profit in the future. This is going to make it increasingly difficult for individual buyers to invest in land.”
Adding to the buzz about medical office space is that since the pandemic, it has gained the reputation of being one of the more resilient commercial asset types.
Accordingly, multi-tenant medical buildings are increasingly popular with investors looking to diversify their portfolios amid uncertainty, according to the report.
What many entries in 42Floors’ top 20 had in common was the fact that they were all owner-occupied expansions of campuses belonging to larger healthcare operators.
While Texas led the overall list by state, New Jersey was next, based on total square footage. It is home to the fourth- and fifth-largest developments this year: The first is the construction of a new ambulatory medical pavilion that will be part of the Robert Wood Johnson University Hospital in New Brunswick at 210 Somerset St.
Second is Reconstructive Orthopedics, a conversion of an office building into a medical facility situated within New Jersey’s state borders but actually part of the Philadelphia metro area.