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By AZ Advisory Team, February 25, 2010 5:03 pm

These changing market dynamics will increase demand for medical office space, presenting new opportunities for commercial real estate professionals. Repositioning office space for medical use can be expensive in the short term; however, the long-term value benefits can be substantial. Retrofitting these buildings can run about $80 per square foot to $100 psf and strong management is key as physicians tend to have more maintenance issues due to patient traffic. In addition, higher parking ratios are a difficult hurdle to overcome. Depending on the jurisdiction, medical office parking ratios can be between four to five spaces per 1,000 square feet.

With significant barriers to entry, medical office repositioning projects are geared toward sophisticated investors with a solid management staff as well as an understanding of the demand for this space in a particular market. A building approved and re-zoned as medical office can provide an immediate pop in value similar to that of an approved condominium map for an apartment building. The rental premium created can provide a strong hedge against lagging office rental rates and high market vacancy, since medical practitioners tend to stay put.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services..