The medical office sector has been subject to significant growth in recent years. An aging population and shifting healthcare trends, such performing medical procedures outside of the hospital setting has contributed to the growth in medical office.
As the demand for medical office real estate continues, factors such as rising construction costs and ongoing supply chain issues are expected to detract practices from relocating their offices. Medical office buildings with lease expiration dates in the next 12-18 months should start thinking about their renewal strategies.
In Houston alone, demand, tightened supply and escalating operating expenses have contributed to increased asking rents, which registered $28.72 per square foot as of fourth quarter 2021. Despite increased asking rents across various markets, tenants still have significant leverage as the cost to renew tenants is far less than backfilling them for landlords. As you’re negotiating your renewal, keep these tips in mind:
Shop around. Before engaging in any negotiations, make sure you’ve shopped around so you can speak intelligently to the market and availability. If you find that you’re in a lease market with many options at lower rents than you’re currently paying, you’re positioning yourself for successful negotiating.
Know your options. Do you have any lease renewal options in your current lease contract? If not, you should be aware that your landlord does not have to renew your lease, although they would probably prefer to. If you’re in a competitive submarket, you will want to use a delicate balance for negotiating, so the landlord does not opt to lease your space to someone else.
Start early. Given the current market conditions and construction timelines, tenants need to allow ample time to negotiate a new lease contract. For construction projects requiring permitting, you should budget about six months. So, for anyone looking to move, start your search about 9-12 months from your lease expiration date. Landlords are tuned into this as well, so if you wait too long to begin your renewal negotiations, they’ll likely know that it would be challenging to move in a short period of time.
Be friendly. The saying that you catch more bees with honey is undoubtedly applicable to your building managers and landlord brokers. Brokers want to seal the deal in the fastest and smoothest way possible. Knowing you have the same end goal, work with your landlord’s broker to find mutually agreeable terms for the building owner and you.
Plan for growth. If you anticipate that your practice might be in growth mode throughout your renewal term, think about some options that you could include to give yourself some flexibility. Termination options, expansion options and right of first refusals are helpful tools to keep you from getting boxed into a too-small space.
Lease renewal time is an opportunity for tenants to review their current arrangement and make any necessary adjustments. If your current space fits the bill, you’re already ahead. If your practice needs to expand, downsize, renovate or relocate, renewal time is the perfect opportunity to assess your changing needs. Following the guidance above should ensure a smooth and stress-free renewal process.
Ashley Cassel is Senior Vice President, Healthcare Advisory Services. Based in Houston, Ashley specializes in providing cutting edge real estate solutions for landlords and tenants in the medical office sector.
This article originally appeared in the January 2022 issue of Houston Medical Times.
SEE ALSO:
- UT Physicians Inks 139,243 SF Lease in Houston’s Bellaire Submarket
- Feel Good from the Start: Improving the Patient Experience through Space Design
- Common Pitfalls to Avoid Before Entering a Sublease
RELATED TOPICS:
commercial real estate
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medical office buildings
