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Medical Office Space in High Demand in Slow Office Market

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Everyone may be talking about the weak office market but there are areas in which the demand for office space remains strong and is even growing. The services of health care providers are required, regardless of the economy or real estate values and many realty professionals are making the most if this opportunity.

With the coming implementation of the Affordable Health Care Act, signed by President Obama on March 23, 2010, it is nearly certain that the high demand for medical and health care-related office space will continue.  As the American public gains access to affordable medical, dental, and other forms of health care, more and more facilities and practitioners will be required to care for those who, in the past, have not sought or have severely limited use of health care services.

In some areas the overall office vacancy rate is as high as 25%, yet, the medical office space made up over 26% of the total leasing of office space in those same areas. According to David Scherer, manager of one-half million square feet of medical office space in Nevada, “Medical office space is recession resistant due to the fact that people need medical procedures through good and bad economic times. There wasn't as much speculative building with medical office space during the real estate boom, since it typically needs to be located next to a hospital, which makes it naturally supply constrained.”

Because medical offices are seeking new, more convenient locations to better provide services to their patients, the demand for medical office space is no longer constrained by the need to locate near a hospital. As health care becomes more available to American, medical offices are spreading into suburban areas, shopping centers, and other non-traditional medical office locations, driving the demand for medical office leasing even higher.
The average rents for medical office space has also dropped significantly during the past year, allowing health care providers to expand their office space as well as add additional locations to their practices. In addition, some medical practitioners are concerned about the implications of the health care act, has resulted in medical professionals choosing to lease office space rather than purchase existing facilities or building new structures.

With the health care legislation providing drive for the future of many medical practices, healthcare professionals are taking advantage of the tenant’s market. Incentives are often available with office space leases, such as tenant improvements, waived maintenance fees, or even free rent for a period of time, it only makes sense that businesses such as health care providers will benefit from the slow office market.

Due to slow reimbursements from government-provided health care, such as Medicare and Medicaid, as well as many private insurance providers, combined with the desire to reduce overhead costs, some practitioners have consolidated their practices in order to gain more negotiating power, resulting in the need for larger facilities and additional medical office space.   Locating the right medical offices for these larger practices, combined with other factors, has worked together to keep the medical office space market robust even during slow times for the overall office space market.

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