Jordan Ellis
Hospitals are among the most energy-intensive buildings, yet many are commercial enterprises aimed at earning money and serving patients. Commercial buildings are an important part of doing business, and they contain one or more types of businesses, including retailers, restaurants, offices, and manufacturing. Healthcare real estate agents help healthcare providers evaluate their options and choose between traditional office buildings, retail spaces, medical office buildings, and hospital campuses. Medical office buildings are often located on hospital campuses, providing an atmosphere that creates strong referral partners and synergies from healthcare-related tenants.
| Characteristics | Values |
|---|---|
| Commercial buildings | Buildings where commercial activities take place |
| Types of commercial buildings | Office buildings, retail spaces, warehouses, restaurants, manufacturing facilities, etc. |
| Hospitals | Considered commercial enterprises aimed at earning money and serving customers (patients) |
| Healthcare real estate | Hospital campuses, medical office buildings, retail spaces, and traditional office buildings |
| Hospital campuses | Usually owned by hospital owners, custom-built for their needs, and may include medical office buildings |
| Medical office buildings | Dedicated exclusively to healthcare tenants, often providing an atmosphere conducive to referrals and synergies with other healthcare tenants |
| Retail spaces | Provide visibility, exposure, ample parking, and synergy with neighboring tenants, which can drive extra patients |
| Traditional office buildings | More affordable, natural light, familiar experience for patients, common area benefits, and more assistance from landlords |
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What You'll Learn
Hospitals are commercial enterprises
Hospitals are complex institutions that play a pivotal role in providing essential healthcare services to communities. While their primary focus is on patient care, they have increasingly become large, complex commercial enterprises.
The nature of hospitals as commercial entities is evident in their revenue streams and ownership structures. Hospitals derive income not only from patient fees but also from a range of other sources, including investments, subsidiaries, ambulatory surgical centres, and income from hospital-controlled physician practices. This diversification of income streams is a significant shift towards a more corporate model.
Hospitals, particularly larger ones, are often part of extensive healthcare systems or chains, which can result in multiple changes of ownership over time. These ownership changes occur through mergers and acquisitions, with hospitals being bought, sold, and leased by various entities. This dynamic nature of ownership further underscores the commercial nature of hospitals.
Another aspect that highlights the commercial nature of hospitals is their real estate considerations. Hospitals occupy substantial spaces, and their campuses can include various buildings and facilities. The development, management, and leasing of these real estate assets are significant undertakings, often involving substantial investments and complex financial decisions.
Furthermore, hospitals are significant employers, providing jobs to thousands of people, including medical professionals, administrators, and support staff. They are also large consumers of energy and users of local services, such as police, fire, infrastructure, and public safety. These aspects of hospitals have financial implications and contribute to the economic impact and complexity of their operations.
While hospitals have a moral and legal obligation to prioritise patient care and community health, the commercial aspects of their operations cannot be overlooked. The balance between providing essential healthcare services and operating as a business enterprise is a delicate one, and it is essential for hospitals to strike a balance between their commercial interests and their responsibility to the community.
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Hospital campuses vs. traditional offices
Hospitals are among the most energy-intensive buildings, yet patients want their care delivered in an environmentally responsible manner. Hospitals are considered commercial real estate properties. There are four main types of commercial real estate properties that cater to the needs and requirements of healthcare professionals: office buildings, retail space/shopping centers, medical office buildings (MOBs), and hospital campuses.
Traditional office spaces are often more affordable than hospital campuses, medical office buildings, or retail or shopping centers. Office spaces are also preferred by many doctors and healthcare providers because they offer more natural light and better window lines. Traditional offices also offer a familiar experience for patients and are often located in a traditional business setting with other professional office or corporate-based entities.
Medical office buildings are typically more expensive than traditional office buildings, but the cost depends on factors such as location, quality, and age of the property. MOBs are usually located on hospital campuses and offer an increased supply of janitorial and utility services, as well as other healthcare-related amenities. Being located on a hospital campus is not the right fit for all healthcare practices, but it can be beneficial for those who value certain advantages. The primary reason a practice would prefer to be located in or near a hospital campus is its affiliation with the hospital or other complementary practices affiliated with the hospital.
The choice between a traditional office and a hospital campus depends on various factors, including budget, the specific needs and requirements of the healthcare practice, and the benefits offered by each option. A healthcare real estate agent can help evaluate the pros and cons of each option and ensure the best choice is made for the office location.
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Medical office buildings (MOBs)
MOBs have gained popularity among investors due to the resilience of the healthcare sector. Patients continue to seek medical care regardless of economic downturns or global health issues, making MOBs stable investments with long-term occupancy and revenue potential. The shift from inpatient to outpatient care further contributes to the attractiveness of MOBs, as they offer convenient and affordable treatment options, particularly for an ageing population.
MOBs are also witnessing innovation driven by the demand for improved patient experiences and community-based healthcare. Property Technology (PropTech) investments are being made to integrate technology such as digital signage, wall displays, and interactive kiosks, enhancing the patient experience and creating a patient-centric environment. Additionally, the competition for new patients is leading to the development of smaller, off-campus MOBs in suburban and retail settings.
The market for MOBs is expected to grow globally, particularly in regions like Europe, Asia-Pacific, and Latin America. Factors such as an ageing population, advancements in healthcare technology, and government initiatives to improve access to quality care are driving this growth. MOBs offer stable investment opportunities with long-term tenants and potential for appreciation in value due to the increasing demand for healthcare services.
Overall, MOBs play a crucial role in delivering healthcare services and present attractive investment prospects by providing stable cash flow, meeting evolving patient needs, and adapting to trends in the healthcare industry.
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Retail spaces and shopping centres
There are many different types of retail spaces, including stores, shopping malls, and boutiques. Malls, for example, are a type of retail space that brings together a variety of retailers under one roof, including big-name brands, small boutiques, and food courts or restaurants. Community retail centres, which are larger than strip malls, are another type of retail space. They can range from 150,000 to 350,000 square feet and include multiple anchor stores such as grocery stores, drug stores, and restaurants.
Fashion centres are another type of retail space, defined by their offering of high-fashion retail with famous, well-known brands. They can range from 80,000 to 250,000 square feet and may include luxury department stores. Outlet centres are primarily for clothing manufacturers and retailers to locate their outlet stores, but they also feature household brands selling overstocked or discounted items.
The line between commercial and retail spaces is becoming blurred due to the growing popularity of mixed-use properties and evolving business models. Commercial spaces refer to a broader range of business activities and can include offices, stores, restaurants, and warehouses. They are typically more limited in terms of location, with factories needing to be in industrial zones and offices in business districts.
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Healthcare real estate agents
Healthcare real estate advisors, such as HREA, Avison Young, and CARR, provide services to healthcare tenants, buyers, and investors. They help healthcare providers secure favourable terms for medical practices, ensuring financial and practice goals are met.
These advisors also work with owners of healthcare facilities to sell their clinical real estate and raise capital for new developments. They can offer creative ideas and innovative solutions to maximize the value of the real estate and the enterprise value of the healthcare business.
Healthcare real estate is a rapidly evolving industry, with transaction volumes experiencing a significant "bounce-back" in 2024. Lower interest rates are driving valuations to new heights, enhancing the potential for lucrative investments and signalling a surge in acquisition activity.
Healthcare providers seeking real estate have a variety of options, including traditional office spaces, medical office buildings on hospital campuses, or retail spaces with ample parking and high visibility. Each option has its own benefits and drawbacks, and real estate advisors can help providers make the best choice for their needs.
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Frequently asked questions
Yes, hospitals are considered commercial buildings as they are commercial enterprises aimed at earning money and serving customers, who in healthcare are called patients.
Other examples of commercial buildings include office buildings, retail spaces, warehouses, and multi-use buildings.
A multi-use building is one that has a variety of tenants. These tenants might include restaurants, retailers, offices, residential rentals, and even healthcare facilities.
Hospitals being commercial buildings means that they can generate revenue and reinvest it into better patient care and technology.
