How to Handle Medical Practice Rent Increases

If you're reading this, you're likely not a stranger to this stat: According to real estate market research firm Informa, a new record high was set for medical building rental prices in 2022. The average net asking rents for medical office spaces increased by 1.7% to $22.61 per square foot nationwide.

Frank Nogareda,  Medical Group Private Banking Director says this has been a growing problem in the state of Florida since 2007.

Nogareda expects this trend to continue in Florida but believes there are things that medical professionals can do to help cope with the increases. This article talks about why medical office rents are more expensive, what you can do about the problem, and how City National Private can help you find cost-efficient rental spaces.

Why Does it Cost More to Rent Medical Offices?

According to Nogareda, there are a number of factors that play into the higher prices of medical rentals, including inflation, lack of inventory, high occupancy rates, the stability of the sector due to high renewal rates of medical tenants, increased investment in the medical building sector by larger investment players, and so on.

Most markets in Florida, he says, are far above the national average for medical rentals. “In 2017, the price per square foot for a dental practice was around $22 in Cooper City. However, now it's $44. For most doctors that works out to around $110,000 a year being spent on rent."

Nogareda also points out that due to the drivers behind these rent increases, doctors are often left with no option other than renewing their leases in the locations they practice in while keeping their local customers without many options to move.

But the good news is, there are some ways to counter the effects of rising rents.

Six Strategies to Help Combat High Medical Office Rental Prices

As long as the demand for medical care continues, you can almost count on steady future increases in Florida's medical office rental prices. Therefore, it's critical for medical practitioners to strategically plan for how they will manage rental price increases throughout their careers. Here are some tips:

1. Negotiate your lease with a lawyer or specialized medical space finder

The first thing Nogareda recommends to clients who aren't ready to buy their own practice is they negotiate their lease with the help of key industry partners that understand the medical, dental and veterinarian industry.

At this stage in the journey, the Medical Banking Group can help practitioners with things like equipment loans and tenant improvement loans to ensure that their leased location looks and feels different than their competitors.

2. Note your location

Another strategy Nogareda thinks is critical for medical professionals is to choose your lease location wisely and think about a plan B before even entering a lease on your first office. What does he mean by that? “Before you sign a lease, have your space finder look 2 to 3 miles around your potential office for properties that might be hitting the market in the next 5 to 10 years. This is such a crucial part of the research that most of the time gets overlooked because the focus is the lease and opening your first office.

If you lease in an area with very few development opportunities, you could end up leasing throughout your entire career or take a chance and move away farther than 5 miles which often results in patient attrition and loss of income, says Nogareda.

3. Consider building or buying instead of leasing

Nogareda often recommends that instead of leasing altogether clients make a plan to purchase their own office space as soon as possible. This could be key for medical professionals for a variety of reasons. First and foremost, it protects them from predatory rental increases when they've been long-term tenants in a location. However, it also helps them maintain their costs in the future, increase their profits, and generate equity. And it could provide rental income in retirement.

“We ask all our doctors where they see themselves in the next 5 to 10 years," says Nogareda. “With a plan and a team in place we have helped doctors start a practice and purchase real estate without ever having to rent."

4. Budgeting to make your own space a reality

Medical practitioners should be strategically saving and investing to make their goal of owning their own medical space an attainable one. But that doesn't mean you have to sacrifice in other areas of your life. Nogareda helps the medical practitioners he works with build the lifestyle they want while preparing for their practice's future.

First, Nogareda helps them purchase residential real estate or vacation homes and build equity —while also saving strategically. "When they're ready to buy medical real estate," says Nogareda, "we look at the entire portfolio and available capital to make sure we make the process of the purchase as smooth as possible for the doctor. Finding creative ways and thinking outside the box is what sets our group apart from our competitors.

5. Get the right financing

When it's time to finally pull the trigger and buy the office of your dreams, you want to make sure you have the right financing partner in your corner. Some banks see medical practitioners as just another customer group. But it's important that you're not just a number.

Look for boutique banking options aimed at medical practitioners like the City National Bank of Florida's Medical Banking Group. Our boutique advisors can help you with conventional owner-occupied real estate funding or SBA 504 loan programs. Our team can also help doctors purchase commercial real estate as an example an office park or a shopping plaza—but they'll also help you do other specific tasks, like analyzing the real estate market so you can buy strategically. This is something Nogareda regularly helps his clients with.

6. Reach out to financial advisors

Unlike most banks, the City National Private’s Medical Banking Group takes an active approach to helping clients with medical office rents. “If you're a banking client, we connect you with experts in local real estate who can help you find properties within your budget, "he says. “We coach doctors on how to get control of office rental expenses and can connect you with lawyers who can help you negotiate your lease."

Financial advisors who see themselves as partners, like the Medical Banking Group, also help you plan for every stage of your medical career. Whether you're opening your practice in a leased space, building your lifestyle by purchasing a primary or vacation home, purchasing medical or commercial real estate or planning your income in retirement, you'll have support. ¹

Here's How to Make a Plan:

While it can be tempting to worry about the creeping rental prices, making a plan to own our own office space is a better strategy and will make you feel like you have more control over your business.

The first step to making a plan is finding the right partner to help you do so. Choosing advisors like those at the Medical Banking Group will ensure that you have partners in your corner dedicated to making your financial and practice dreams comes true. Then, you won't have to worry about your rent and can focus on what you do best—building and running your practice.

City National Bank of Florida's Medical Banking Group is here to help you figure outa strategy for navigating medical rent increases. For more information, get in touch online or call 800-383-4413.

‍Sources:

wealthmanagement.com

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¹Investment products are not insured by the FDIC or by any federal government agency. They are not a deposit or other obligation of, or guaranteed by, City National Bank of Florida or any of its affiliates. They are subject to investment risks, including possible loss of the principal amount invested.  City National Private does not provide tax or legal advice. Some securities products may be provided by Bci Securities, Inc. City National Bank of Florida is an FDIC insured institution and not a broker-dealer. Bci Securities, Inc. is a registered broker-dealer and insured by SIPC. Bci Securities is an affiliate of City National Bank of Florida under common ownership.

Please note: The content in this article comes from individual opinions and experiences. The content should not be taken as advice coming from City National Bank of Florida. City National Bank of Florida does not offer tax, legal or accounting advice.

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