September 2, 2022

10 Things Doctors Need to Know About Healthcare Real Estate

Did you know that real estate is surprisingly complex for healthcare providers? Whether you’re leasing or buying real estate–for your startup practice or relocating your current office–selecting the ideal location, negotiating the best terms, and designing the perfect medical office building or clinic is daunting for most doctors and dentists.

When you're busy running your medical or dental practice, you don't have the time or the energy to worry about the million things that must be done to ensure success. And if you’re like most doctors and dentists, it’s the “I don’t know what I don’t know” that tends to worry you the most.

So let’s see if we can reduce some of the worry! In this article, we've provided 10 key things for you to consider as you look for healthcare real estate.  

1. Location. It’s true, location matters!  You’ve undoubtedly heard the saying, it’s all about “location, location, location,” and although the saying dates back to the early 1900’s, it still applies today.  A superior location is the great equalizer.  A superior location can do one of two things for a practice.  First, it can mitigate or help overcome many practice deficiencies or shortcomings, keeping the practice competitive and successful. We see all the time mediocre clinicians in great locations and the practice thrives. A great clinician in a mediocre location and the practice is slow to get going. But I also believe a great clinician, in the long run, will always be found. Greatness can’t reside in obscurity forever.  Therefore, and my second point is this, when a superior location is combined with a superior practice then the sky’s the limit.  A practice with a great location and a great clinician will grow faster, bigger, and dominate the marketplace.  So a great location takes a lot of pressure off the practice regardless of the practice dynamics.  That’s why location is the great equalizer!

 

2. Market Potential. What is the market potential in your desired market or geographical area?  You would apply the same concepts Target, Walmart, Kroger, etc. would use to determine where they’d put their next store.  Market potential is learning three things about your desired market or geographical area. They are ( i ) the current or projected need for medical or dental services (demand), such as dermatology, pediatrics, orthodontia, etc.; (ii) how much of the demand is being met by current providers (supply);  and (iii) is the difference between supply and demand (the gap) or projected gap sufficient to put an office in that area. Sometimes I like to add a follow up question to number (iii), and that is “where are people currently going when medical or dental services are needed and the market area lacks providers?”  With services that are highly competitive for market share, as is typically the case with dentistry, pediatrics, dermatology, and many others, analyzing market potential takes a greater understanding of the data and key socio-economic indicators in order to see into the future. Those that are better at understanding the market data and using that data to draw conclusions can enter the market sooner offering some distinct advantages over their competitors.

 

3. Demographics & Behavioral Characteristics. As with market potential, an important question to answer when considering real estate is whether the desired market or geographical area satisfies the practice’s target patient demographic. Demographics are the statistical characteristics of a population, such as size, income, age, education, race, etc. If a practice specializes in geriatrics, selecting a location that is composed of young families could potentially contribute to slower practice growth. It’s best to confirm the geographical area from which a practice will likely attract new patients is sufficiently provisioned with the target demographic. Behavioral characteristics, in the context of demographics, is understanding the unique characteristics of your target patient, including things like where they live, how they spend their money and free time, their use of technology, do they prefer DIY projects or hire professionals, and the manner in which they prefer to interact with businesses or service providers.  Not only can you better determine the ideal location of your practice but this knowledge can help you build or enhance the patient experience and your brand.

 

4. Complementary Uses. When it comes to practice growth new patients are a critical part of most strategies. Because patient referrals are the gold standard, complementary uses and are often overlooked. Complementary uses are other service providers, which may or may not be healthcare related, that share a common patient demographic. For example, it would be important for a pediatrician to be located close to preschools and elementary schools, daycares, dance or gymnastic studios, after school programs, learning or tutoring centers, etc.  Other pediatric uses would also be synergistic, such as Pedodontists, Orthodontists, or pediatric medical specialists, such as speech therapists, ENTs, Allergist, Child Development, and more. Regardless of the medical or dental use, there are always other healthcare providers or businesses that are synergistic and would provide potential referrals simply based on proximity and convenience.

 

5. Ingress & Egress. Simply put, how easy is it for patients to enter and exit your property or building? It can be frustrating for any patient to be confused or inconvenienced when needing to enter or exit the property. Evaluating the location of curb cuts (driveways), median breaks, protected or restricted turns, etc. is important when determining if patients can make right or left turns to access or leave the property, are required to make U-turns, or enter another property to get to their desired destination, etc. 

  

6. Parking. When evaluating potential practice locations, parking is the number one concern for most healthcare users. If there is not enough parking for staff and patients it will have a significant impact on the practice. Many developers intend to sell their building shortly after it’s built, and their goal is to maximize the price by maximizing the size of the building. Maximizing the size of the building is usually at the expense of available parking.  Because parking is of little concern to them, they tend to provide the absolute minimum parking required as determined by the particular city or municipality.  The required minimum is not typically conducive for medical or dental uses with large staffs and lots of patients.. So, if the property is under-parked it will either force patients to park far away, making it difficult for those who aren’t as mobile or have to contend with rain or hot or cold temperatures; or, it will deter them from wanting to come to the office or clinic at all. If it’s a hassle to park, they won’t want to make the trip.  We advise our clients to consider a building with a parking ratio, the amount of square feet per one parking space, of no more than 200:1.  Anything above 200 becomes problematic. A ratio closer to 175:1 or less is ideal for providing the necessary parking.  Evaluating your own parking needs is important factoring in the size of the staff and the number of patients that are in your office at any given time, but you also want to consider the parking demand of the other tenants and their impact on available parking.  

7. Professional Office or Retail Property.  I’m often asked which is better or more advantageous for a practice location?  As is often the case, it depends.  Based on the particular medical or dental use, and the marketing or branding goals and objectives of the practice may determine which setting is better.  Medical or dental uses that serve communities, such as General Practices, Pediatricians, Dermatologists, Optometrists, Ophthalmologists, General Dentists and Specialists, ENTs, etc. are successful in either environment. Deciding factors tend to come down to signage and visibility, other tenants or uses at the property, traffic count, a practice that is referral based, like an Endodontist versus a practice that wants to accommodate walk-ins, etc. 

8. Signage. The ability to place signage on the building, and the monument sign or pylon if available, can provide a significant financial benefit to the practice. In many cases signage alone can increase new patients by 10 to 15%. A good quality sign can be seen 50-60 times per month by anyone living within 5 miles of your practice location. Prospective patients will research a practice online after seeing the sign when driving by, or will tell others about the practice simply having seen the sign. In addition, signage can help patients locate your office, reinforce your messaging and brand awareness, and advantages over competitors who lack quality signage, or signage altogether.

9. Design Potential. Let’s assume you know what you want in an office design that will fulfill your vision for creating the best patient experience and make you and your staff happy and proud.  Aside from things  like square feet (current needs vs. future growth), office layout, staff and patient flow, amenities and accommodations, style and aesthetics, etc. there are few things that can materially affect the design, but they’re really important. When evaluating a space, it’s important to first confirm the usable square feet.  Is the usable square feet different than the rentable square feet?  How is the space measured to determine the usable square feet?  Designing your office only to find out the square feet is off can require the layout to be completely redone or worse, the square feet isn’t sufficient to meet the office needs and you need to make serious compromises or consider looking elsewhere, if that’s even an option.  Other important considerations are the shape of the space, interior columns, door and window locations, and technology. Irregularly shaped spaces are not a deal breaker at all, it’s just important to understand how it affects the layout and design.  Understanding design options for specific areas with acute angles, curved walls, asymmetrical rooms, etc.  Interior columns are often a challenge because in most cases it’s preferable to hide the column in a wall, which can force the layout and design to a large degree.  Clear span buildings are alway preferred but if interior columns are present I advise choosing spaces that have no more than one column for every 2,000 square feet.  One column in 2,000 square feet can be managed comfortably.  More than one column and the freedom to design what you want becomes compromised.  Doors and windows are often a key part of the design, on multiple levels.  Sometimes doors and windows can be moved. But when you are required to design the space around doors and windows you want to know your vision can be realized.  Some design concepts regarding doors and windows include patient and staff flow (entry and exits), lighting, climate control, security, privacy,  maintenance, and more.  Lastly,  technology is no longer an amenity, it’s a requirement.  A building or space must be able to accommodate the technology needs of the practice, including square footage as well as systems integration.  Medical and dental equipment, smart technology, internet connectivity and bandwidth, and energy needs should be part of the due diligence when evaluating the design capabilities of a new office space.

10. Budget. It’s hard to nail this down since it can vary so much based on the nature of the real estate transaction, i.e leasing or buying a space or building, buying land to construct a building , etc. or the particular needs and desires of the practice owner, but let me provide some context. When working with our clients there are two financial assessments we perform. First, determining the project budget, i.e. construction, IT, moving expenses, FF&E,  medical or dental equipment, professional services, etc. and the capital (out of pocket cash) outlay required, i.e. down payment,  expenses not included in the project loan;  and, second, preparing a three year cash flow projection factoring in all the potential changes to the practice, such as debt service and all the expenses related to the new space, i.e. rent, operating expenses, etc., projected revenue, other practice related-expenses that may be different in the new space.  These assessments are performed early in the process to determine what’s feasible or not, to establish the parameters from which you can decide what’s best for all the practice stakeholders.  The best advice I can offer is know what you can do financially, stay conservative, work with a quality team who advocates for you, make decisions expeditiously, and have fun!

We Can Help You Find Your Ideal Healthcare Real Estate Today!

Feeling overwhelmed? Need help?  Don’t worry!  Contact us anytime, no matter how big or small the issue or question may be.  We’re committed to helping you make the best real estate decisions for you and your practice.

Contact us for all your healthcare real estate needs. 

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