Medical Office Space Attracts Attention Amid Coronavirus

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In the face of the current market uncertainty, we wanted to provide our users with insights into trends we’ve observed in our marketplace and property database. We hope these insights will provide value and context as we navigate the changing landscape of commercial real estate together.

Currently — and understandably — the medical office sector is experiencing massive emergency demand in the face of the coronavirus pandemic. Hospitals simply don’t have the capacity to accept the high numbers of individuals requiring medical treatment.

This influx of patients has radicalized emergency action: the US Army Corps of Engineers has mobilized and converted empty buildings in major metropolitans into medical spaces to accommodate more hospital beds. New York City’s Javits Center is expected to host thousands of patients in the coming weeks, while other USACE units have deployed to build out hospital proxies in 31 states. Hotels, sports arenas, and public spaces across the country — emptied of visitors due to the coronavirus — are converting into shelters to COVID-19 first responders, individuals needing quarantine (but not severe medical treatment), and urban homeless populations. Even the USNS Mercy and USNS Comfort have ported in Los Angeles and New York City, respectively, to meet medical demand in the wake of the coronavirus.

However, the conversion of buildings to medical centers is not unique to the current economic climate. Just in 2019, Houston’s Transwestern repurposed a 114,413 square foot building into a medical plaza. In California, the conversion of offices into medical centers drove a high percentage of the state’s redevelopment projects in 2019.

We see this demand for medical space reflected in CREXi’s internal data. Month over month, our website’s traffic has seen a 9.4% increase in medical office searches and buyer actions from January to March 2020. This increase occurred while many of the other sectors are seeing decreases month over month.

Healthcare is one of the nation’s fastest-growing industries — the US Centers for Medicare & Medicaid Services predict healthcare spending to reach $5.7 trillion by 2026. Thanks to the Affordable Care Act, higher numbers of aging Americans (every day 10,000 people turn 65), and the rise of boutique medical services, more people can and are accessing healthcare than ever before. 

To date, medical offices comprise 10% of the US office asset class, with a total of $10.4 billion sold in 2018. According to CBRE’s annual report on medical offices, the total number of outpatient facilities grew by over 50% from 2005 to 2016, with capital flowing from both domestic and foreign capital as well as REITs.

Doctors are treating patients as consumers — rather than users — of healthcare; as such, they’re ditching sterile-looking medical offices for flashier and more conveniently located spaces, such as retail centers and malls. The challenge is for the commercial real estate sector to keep up with the demand for these property types. 
Still, the development or repurposing of use-focused, tenant-friendly offices presents positive growth opportunities in the sector. As the coronavirus radicalizes building conversions to meet the increased need for medical care, we must wait to observe the long-term impact on the property type and what it means for investments.

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Shanti Ryle
Shanti Ryle

Content Marketing Manager

Shanti leads CREXi's content marketing strategies with 7+ years of content development experience, creating everything from blog posts to award-winning podcasts. Previously, she worked on content teams at Snapchat, Weedmaps, and HopSkipDrive as well as developed copy, articles, and media for freelance publications.

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