Medical office sector — a healthy market

By Michael Stoler | April 29, 2009 02:59PM

At a time when the value of commercial real estate is
decreasing along with investor interest, one sector which remains
healthy is the medical office market, according to a report from Marcus
& Millichap Real Estate Investment Services.

“Parts of the country have seen underperforming medical office assets, but the segment is generally holding up better than other product types,” the report says. “Medical office properties continue to garner investor demand, partly because of the positive state of the healthcare industry.”

More than 17.5 million square feet of medical office space was completed in 2008 and 16 million in 2007, with 13 million projected for 2009, said Alan Pontius, senior vice president and managing director for Marcus & Millichap’s Healthcare National Office and Industrial Properties Group in San Francisco.

In the New York City market, a California-based investment company that owns and operates a free-standing ambulatory surgical center, recently purchased four office condominiums totaling 14,000 square feet at the 12-story, 159,359-square-foot office building known as 3 Dag Hammarskjold Plaza, at 305 East 47th Street. The buyer paid $9.5 million, or $679 per square foot, for the site. The purchaser plans to operate an outpatient ambulatory surgical center which will be licensed by the New York State Department of Health and approved under Article 28 Certificate of Need.

The softening of the economy and the rise in office vacancies may make it easier and less expensive for doctors to move. And with cheaper prices for materials and dropping labor costs, the time is ripe for investors to purchase sites for medical use.

Michael Stoler is a columnist for The Real Deal and host of real estate programs “The Stoler Report” and “Building New York” on CUNY TV and on WEGTV in East Hampton. His radio show, “The Michael Stoler Real Estate Report,” airs on 1010 WINS on Saturdays and Sundays. Stoler is a director at Madison Realty Capital as well as an adjunct professor at NYU Real Estate Institute, and a former contributing editor and columnist for the New York Sun.