Reform to boost medical office occupancy

By Buck Wargo

Friday, May 21, 2010 | 3 a.m.

Southern Nevada’s medical office market is expecting a boost from health care reform that will add to the number of insured people and bolster demand for medical services.

When more are insured, that means more people see the doctor and get other services at other medical facilities across the region.

For a medical office market that has a 16.7 percent vacancy rate according to brokerage CB Richard Ellis, and a 15.1 percent vacancy rate according to brokerage Commerce Real Estate Solutions, health care reform is expected to eat into that supply.

“With the health care reform bill, we expect vacancy to see a significant drop in the next year or two,” said Mike Hillis, managing broker at Commerce Real Estate Solutions.

Nationally, estimates say adding more than 32 million people to the insurance rolls will create a demand for 60 million square feet, Hillis said. Factor in the 80 million aging Baby Boomers who will need greater care and demand is boosted further, he said.

At the end of the first quarter, CB Richard Ellis reported that the overall Las Vegas market has 1.4 million square feet of vacant medical office space out of 8.8 million total. The southwest valley had the highest medical office vacancy rate at more than 33 percent. The southeast had the second highest vacancy rate at 19 percent.

Bruce Follmer, medical office broker at CB Richard Ellis, said that market is improving slightly from a year ago with some new tenants coming in from outside the market.

Health care reform will bolster demand, but it will take time. Physicians are sometimes slow to react and make decisions about any expansion, Follmer said.

“All these uninsured people, when they are insured, they will be going to services somehow, and you are going to see a big influx of patients in the system,” Follmer said. “There is going to be a lot more demand for the primary care doctors.”

Follmer said he sees more doctors banding together to form groups and take advantage of the opportunities rather than have single practices. That requires larger primary care clinics to handle the demand, and that will gobble up some of the vacant space.

“I think it is going to have a positive effect on absorption in the market, but it won’t be as quick as everyone thinks,” Follmer said. “I don’t think you will see any new (speculative) building for at least three years because of the amount of space we have to gobble up here.

“I don’t think you are going to see any hospitals built for a number of years because we have a lot of rooms to absorb,” Follmer said.

Al Pontius, senior vice president and managing director of Marcus & Millichap’s National Office and Industrial Properties Group, said health care reform will create a greater demand for health care services — but the problem is that this requires additional medical professionals, who aren’t yet in place.

“The impact on health care reform on space demands is probably 18 to 24 months away at the earliest,” Pontius said. “You will certainly see some positive impact in the short term. For example, children can stay on their parents’ health plan until they are 26. There will be more people covered by insurance than there otherwise would be, but you still have to translate that into more physicians. The requirement for more space is a function of more physician groups and hospitals leasing space.

“The market sector was always feeling positive about the long-range outlook irrespective to health care reform,” Pontius said. “It is not the driver, but health care reform provides an additional boost. The driver is a demographic that is getting older.”