Unlocking Value: The Benefits of Converting Traditional Office Space into Healthcare Facilities
By John Koss, Senior Vice President, Asset Management & Partner and Rob Rumer, Investment Manager
With steep vacancy rates impacting traditional office markets due to the headwinds of higher interest rates, short-term economic uncertainty, and long-term remote/hybrid work, underutilized traditional office buildings provide a viable opportunity for conversion to medical outpatient space. This approach offers numerous benefits for healthcare providers and healthcare real estate investors, enhancing their ability to deliver high-quality care while optimizing resources and expanding their reach within communities.
Stable & Recurring Revenue Streams
Medical outpatient facilities typically generate stable and recurring revenue streams, driven by a continuous demand for high quality healthcare services as well as enjoying longer-term, “sticky” tenants who are likely to remain in place once establishing a practice. Additionally, existing provider tenancy can serve as a strong referral source for complementary service lines looking for available space, thus creating a consistently higher occupancy rate overall.
Relatively attractive lease terms, low cap rates, potentially higher credit profiles, and a strong commitment to the space results in greater WALT (weighted average lease term) as well was lower tenant turnover rates, translating into consistent rental income and higher overall facility occupancy.
Strategic Location & Accessibility
By converting traditional office spaces into healthcare facilities, investors and physicians alike can capitalize on prime locations within densely populated areas or thriving business districts. Proximity to major transportation hubs and ample parking further enhances accessibility for patients, driving foot traffic and maximizing the asset’s value.
While providing a more compressed schedule for providers to open their doors to patients than a ground up development, the conversion process does typically include enhancements to building systems, plumbing, electrical, and available parking due to the higher density of staff, patients, and compliance with city codes.
Repurposed office spaces can also accommodate the diverse needs of patients, offering a relaxed atmosphere, comfortable waiting areas, and convenient access to ancillary retail services resulting in a positive healthcare experience.
