FEATURE ARTICLE , AUGUST 2005

FEELING GOOD ABOUT HEALTH CARE REAL ESTATE
Medical office space is a growing property segment, especially in Southern Nevada.
Bruce Follmer

Developers and investors are discovering that health care real estate, or medical office space, is just what the doctor ordered.

In Las Vegas, the medical office market has expanded significantly in the last 18 months and has more than doubled in size over the past 5 years. The market is poised for further growth and expansion and may double again in the next 5 years. Experts attribute this growth to the valley’s rapid growth and continued need for doctors. The doctor-patient ratio has been out of sync for many years, and, with the recent passage of more favorable malpractice insurance laws, doctors finally may feel more inclined to open or expand their practice here.

Longford Medical Plaza, a recently completed medical office building in the Summerlin area of Las Vegas and the largest medical office building not connected to a hospital, added more than 132,000 square feet to the medical office building (MOB) market, bringing the total to nearly 7 million square feet, approximately 35 percent of the total office market. Since January 2005, the market has absorbed 66,398 square feet. Office vacancy is at a very healthy 10 percent with the medical office vacancy rate estimated at 12 percent.

Health care real estate is a growth niche. While it represents a relatively small percentage of the commercial market, medical real estate benefits from the flourishing health care industry. According to the Center for Medicare & Medicaid Services, it is estimated that U.S. health care spending will reach $3.1 trillion by 2012.

Financially, medical office buildings are good deals for developers and investors, but they are different in many important ways from traditional office buildings. Interior build-out is generally more expensive because of such design requirements as elaborate HVAC systems, radiation shields and sound control to help ensure patient privacy. The build-out on medical office space runs about $75 or more per square foot compared with $40 for traditional space. In addition, medical office buildings require such amenities as larger elevators, more private toilets, larger mailrooms, specimen box closets and a large number of small rooms.

The growing demand for medical office space has sparked the interest of developers in the last few years. Health care delivery systems such as hospital and other medical facilities are naturally following population shifts or growths. In this manner, medical office space is no different than retail. As the saying goes, commercial real estate follows rooftops.

While the medical office building market is dynamic nationwide, the opportunities are unparalleled in southern Nevada. As one of the nation’s fastest growing metropolitan areas, southern Nevada is an emerging major medical region.

During the last 15 years, an average of 5,000 people monthly have migrated to southern Nevada. As the community continues to grow, health care delivery and the need to attract physicians and related medical services to the area have become pressing priorities.

Emphasizing this imperative, a recently completed gap analysis compared the U.S. and southern Nevada figures for the number of physicians per 100,000 population. Of the 30 specialties evaluated within the categories of generalist, surgical, medical hospital-based and other, southern Nevada showed a physician per 100,000-capita deficit in all but six specialties. While the greatest gaps exist for neurosurgery, OB/GYN, orthopedics and psychiatry, immense opportunities are available in family practice, general internal medicine and pediatrics, among others.

According to Bob Cooper, Henderson (Nev.) Economic Development manager, “The opportunities for physicians is almost unprecedented. Physicians who are just starting out, or those who want to relocate, can move to the area, open a practice or join an existing one and immediately be busy. In addition, recent tort reform has placed a $250,000 cap on punitive damages, making Nevada an extremely attractive practice location.”

Southern Nevada is home to 18 full-service hospitals and major medical centers, and four specialty hospitals with at least two more planned openings this year.

Research and development institutions and companies further validate the area’s influential health care climate. Privately funded entities like the Nevada Cancer Institute and the Medical Education and Research Institute of Nevada have chosen southern Nevada as its headquarters, and a growing number of biotechnology companies have recognized the area as an ideal environment in which to do business. High-profile research programs at the University of Nevada Las Vegas link Nevada physicians, scientists and clinical investigators with experts worldwide to facilitate ongoing cutting-edge medical research.

New York-based Touro University recently opened the first private, 4-year osteopathic medical school in Las Vegas. In fall 2004, the school welcomed 109 first-year students and is expecting an additional 148 when classes resume in September. In addition, Touro’s new School of Nursing and School of Occupational Therapy will admit students in the fall. Local physicians agree this is welcome news as the region has been beset by a nursing shortage, even worse than the lack of doctors.

Overall, the office market in southern Nevada will continue to grow, led by its fastest growing niche, the medical submarket. Older, built-out areas of the Las Vegas Valley will be revitalized. Some industrial and single-use buildings, located close to hospitals, will be converted to medical use. New buildings will be developed in response to the new hospitals and expansions of existing hospitals, and more and more doctors will be attracted to southern Nevada, filling office space and an important need for many residents.

Bruce Follmer is a senior associate for CB Richard Ellis/Las Vegas.

©2005 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.