Serving the Growing Market for Medical-Related Office Buildings
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Understanding and Serving the Growing Market for Medical-Related Office Buildings

Posted on July 9, 2024 by Andrew J. Nelson

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More than four years after the onset of the COVID-19 pandemic sent workers home, office markets still have not recovered. In fact, office vacancies continue to rise as tenants, large and small, are downsizing their workspaces, and few real estate experts expect market demand to revert to pre-pandemic levels in the foreseeable future. Property managers face increasing challenges in keeping their office buildings leased.

One notable exception is medical-related office buildings, which have been far outperforming generic offices, especially in recent years. These facilities take two primary forms: medical office buildings (“MOBs”) and life-science buildings. MOBs house physician offices and related services (like blood labs) and are typically located adjacent to a hospital or in a community retail center near patients. While MOBs often have some unique features, like a backup generator for emergency power and a covered drop-off area, most look and function like generic office buildings, albeit with a particular tenant type.

Healthcare demand has been rising as the population ages, and more people have access to healthcare insurance through the Affordable Care Act, fueling demand for MOB space. MOB demand also has been increasing as hospitals and medical practices seek out more affordable alternatives to hospitals for doctors’ offices.

By contrast, life-science buildings are much more specialized facilities that facilitate the research and operations of companies involved in pharmaceutical and biotech research, development, and production. Demand for these facilities had been growing for years but then soared during the pandemic as firms raced to develop COVID-19 vaccines. The search for new drugs and the aging population will ensure continued demand for more lab space.

Unlike MOBs, life-science buildings are generally purpose-built with expensive features needed to support the laboratories and manufacturing space that occupy much of the building, along with the offices that support these functions. Life-science buildings are usually located near universities to be convenient to the researchers who lead the labs.

Although, there are key differences between MOBs and life-science buildings, what is common to both types of offices, is that each has unique tenants. This means property managers must possess specialized knowledge in order to better serve their tenants.

The Importance of Tenant Survey Data

As Grace Hill explained in a previous blog, perhaps the most effective and cost-efficient strategy for retaining tenants is doing everything possible to ensure they are happy in your building. Studies show that satisfied tenants are more likely to renew — and to provide favorable word-of-mouth recommendations to other firms — which helps increase occupancy. 

How can you keep your tenants happy? To start, it requires a deep understanding of their needs, concerns, and priorities. Some examples include understanding what additional amenities tenants want and how existing building features are actually being used. In this way, management can prioritize the amenity offerings and building upgrades in response to evolving tenant needs.

The most direct and accurate way of obtaining this information is through surveys, which can capture feedback on the tenant experience and provide profound, actionable insights for property managers. Tenant preferences will tend to be similar to some extent for general office buildings within a local submarket, though there inevitably will be differences across buildings: Law firms might express different demands and preferences from tech firms and financial firms. Tenants of premium spaces in new high-rise buildings likely will have different opinions than tenants of more commodity space. Thus, property managers would benefit from surveying tenants in all buildings in their portfolio to understand the nuances and differences needed to develop property management strategies appropriate for each building.

Unique Building Types and Tenants Require Specialized Knowledge

However, developing separate surveys and metrics is even more critical for specialized facilities like medical offices and life-science buildings. Tenant needs and priorities are likely to be quite different from those in general office buildings. Thus, the results of tenant surveys conducted in general office buildings, even those nearby, will likely have little relevance for the manager of an MOB or life-science building. For this reason, property managers must work with a customizable survey program to develop questions specific to the needs of life science tenants, going beyond basic office space concerns.

What topics should be covered? Tenant surveys can be instrumental in uncovering previously unidentified requirements for specialized equipment, collaborative research areas, or tailored safety protocols specific to the diverse fields within life sciences and MOBs. This feedback can further reveal underutilized amenities or common areas that could be strategically repurposed to better align with tenant needs and optimize space utilization. Additionally, surveys can serve as a platform to surface issues that tenants may be hesitant to raise directly, such as inefficiencies in building layout, noise concerns, or limitations in waste disposal capacity. By proactively soliciting this feedback, property managers gain valuable insights that can be addressed to enhance the overall tenant experience.

Communication Is Key

As important as the survey results are for effectively managing the property, surveys serve another critical function: The survey process itself can encourage communication and build trust between tenants and property management. In today’s hyper-competitive office leasing markets, property managers must deploy the tools needed to attract and retain tenants. This data-driven approach is especially important for specialized assets like medical offices and life science buildings. This ensures capital expenditures are strategically directed toward tenant-valued amenities and building functionalities. This, in turn, fosters tenant satisfaction and ultimately optimizes return on investment.

The market outlook is bright for both types of medical facilities and certainly much stronger than general office space. But, succeeding in this arena requires a specialized understanding of these unique tenant types. Tenant surveys can help property managers focus their time, resources, and investment to provide the amenities and services tenants value most.

 Our KingsleySurveys team of dedicated CRE experts can help you craft a survey strategy by providing the insights you need to serve this important market. Get started today!

Andrew J. Nelson is a real estate economist and author at Nelson Economics, focusing on property market dynamics and demographic analysis, as well as research methods and modeling. Andrew is the lead writer for the Urban Land Institute’s annual Emerging Trends in Real Estate publication and a contributing writer for Seeking Alpha and Propmodo Before founding Nelson Economics, he served as Chief U.S. Economist for Colliers International, where he led the national research team. He developed the firm’s economic and property market perspectives and served as the firm’s primary U.S. economic spokesperson in the media and at industry events. Prior to Colliers, Andrew worked at Deutsche Asset Management (RREEF) as Director, Research & Strategy in the Americas, where he managed the U.S. research team and was the retail sector and sustainability specialist.  Andrew has also held a variety of other leadership positions in both the public and private sectors, including Vice President of HOK Advance Strategies, where he served as national practice leader of the Portfolio Services service line; managed a construction-lending program for the World Bank in Russia; held a two-year “Community Builder” fellowship with the U.S. Department of Housing and Urban Development; and managed the regional real estate consulting practice at Deloitte & Touche in San Francisco. Andrew earned a Master of City and Regional Planning degree from the Harvard Kennedy School at Harvard University and a Bachelor of Arts in Economics from Harpur College. Learn more about Andrew Nelson’s background and experience on his LinkedIn page.

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