CREJ

July 2021 — Health Care & Senior Housing Quarterly — Page 3 www.crej.com HEALTH CARE — MARKET UPDATE O ffice spec suite spaces have been trending for years now, but medical office spec suites are consider- ably harder to come by for numerous reasons. One reason is cost. Medical office build-outs are more costly when you factor in the substantial amount of construction needed, including millwork, dry- wall and plumbing. Most medical practices also require sound mitiga- tion and an in-suite restroom. All of these costs make it challenging to convince landlords to spend the amount of money necessary for medical office spec suites. A true spec suite requires more than just repainting and installing new flooring. Rather, in addition to new finishes, a spec suite done right requires a thoughtful and com- prehensive redesign of a suite for maximum efficiency and flexible practice use. But as the saying goes, “If you build it, they will come.” And there has been much success with medical office spec suites during the pandemic and post-pandemic market shifts over the past 12 to 18 months. Traditionally, move-in ready suites, or “speculative” suites, allow tenants to avoid enduring the time- consuming and expensive process to build out medical office space. Whether doctors are breaking off from a larger practice, forming a new partnership or pursuing an expansion into a new market, there is a large attraction to spec suites due to time savings. Often, it could take a tenant nine to 12 months from the initial showing to occu- pancy depending on the design, per- mit and construc- tion timeline. Now more than ever, these landlord- funded, move-in ready spaces offer practices the abil- ity to make the quick decisions necessary. In addi- tion to the time savings, spec suites allow health care providers, espe- cially solo practitioners, to save on costs. Medical office build-outs can easily cost over $100 per square foot and practices often are responsible for covering at least half of that amount. As construction materials become increasingly delayed and prices continue to rise, spec suites allow tenants to avoid the chal- lenge of taking on high build-out costs as upfront expenses when leasing space. For health care pro- viders or practice managers, if a spec suite is able to solve for cost and timing while offering a beauti- ful new space, it makes it easier to justify relocating and directing their patients to a new location. From the ownership perspective, landlords are doing their best to provide a space that a majority of the doctors in the market would view as favorable in terms of lay- out and quality. One of the biggest benefits to spec suites is that they can significantly speed up the leas- ing timeline and get tenants into a space quickly. By reducing the need for a medical practice to go through an extensive build-out process on its new space, spec suites greatly decrease the time between lease signing and move in. Another advantage to the owner is the added flexibility and shorter lease terms that come with spec suites, which allow landlords to charge a premium. The rents achieved on a medical office spec suite with brand-new finishes are capable of a starting rate that is 5% to 10% higher than traditional second-generation spaces. Some landlords even take advantage of the ability to gain economies of scale on construction projects by creating multiple move-in-ready suites at the same time. By doing this, they can receive a discount on some costs from the contractors and at less than what the tenant would pay for a similar build-out on its own. Over the past year and a half, medical office spec suites have become increasingly in demand, even during a pandemic. The medi- cal office spec suites that have been Why medical spec suites are a win-win in Denver Anna Heiserman Senior associate, CBRE The demand for medical office spec suites has increased over the past 12 to 18 months. Please see Heiserman, Page 12