Medical Real Estate Costs Up. Availabilities down.

If this isn't the year your lease is up, and you're not planning to move to a new space, and it's not the year you're hoping to build that new office or renovate your current space --take a deep, relaxing breath and congratulate yourself. If any of the above does apply, you may want to take another deep breath and sit down to consider your options.

"We're all accustomed to real estate costing more than it did ten years ago, but the way costs have soared in just the past year or so in Birmingham has been incredible," Richard A. Campbell, III, CCIM of Veritas Medical Real Estate Advisors said. "Property that cost $65 a square foot to build out a few years ago, now costs as much as $85 a square foot to build out."

"While costs are up everywhere, the changes in the Birmingham medical real estate market have been particularly noticeable.

"It began with the move from Trinity to Grandview a year ago, which triggered the move of quite a few medical practices and support facilities to that area. As demand increased there, rates went up, and there was a trickle-down effect throughout the market." Campbell said.

Those who hoped to get around rental rate increases by building their own facilities haven't fared much better.

"There has been a significant increase in the cost of building materials, especially in the past couple of months as we moved into spring. Perhaps an even bigger factor is the shortage of skilled labor. This has created difficulties even for those who only want to expand or renovate their current facilities."The cost of construction is rising because there is more demand for builders than there are subcontractors to do the work. When contractors call to try to line up subcontractors for a project, there is no room for negotiating a better price. Subcontractors are so busy on both commercial and residential work, they simply say whether they can do it and when, and how much it will cost."

Unless you're in a situation where you have to change your address or start new construction this year, Campbell suggests looking at your alternatives to see if there is a way to postpone making a move for a couple of years.

"Medical real estate is like all real estate. It goes in cycles. Right now, we're nearing the top of a cycle. This is also pushed by residential real estate, with more people building and renovating homes now that the economy is improving, after waiting for years when the economy was down. This is adding to the demand and prices of building materials and labor.

"We are anticipating that the cycle should be in a friendlier place for renter and those who want to build in a couple of years. We can't predict the effects of weather, economics, politics or other influences we can't foresee, but as things look now, it could be worth waiting if you can," Campbell said.

Waiting may not be the advice you'd expect to hear from a real estate profession, but Campbell says as a consultant, his job is helping clients make the best move, even if it's staying in place. Since his work isn't tied to transaction fees or a particular property, he can offer objective advice based on the client's specific needs.

"Every practice has its own priorities. Is it adding new physicians and outgrowing its space, or are some doctors approaching retirement age? Surgeons, obstetricians and other specialties that spend much of the work day at a hospital may put a higher value on having an office only a short walk away."

Those who specialize in geriatrics, orthopedics, heart disease and other fields where mobility can be an issue will be likely to look at accessibility, possibly ground floor offices, number of handicapped parking spaces and perhaps amenities like valet parking.

"Demographics of where patients live and where they are accustomed to going to see their other doctors may be a consideration," Campbell said. "Dermatology, for example, tends to attract more middle to upper income patients. They usually prefer to be nearby. However, if there are already dermatologists in the area, a location with more geographic spacing might offer better opportunities."

Since medical real estate advisors work on retainer, they are also available to answer questions related to leases and medical construction. They can negotiate lease renewals, and help with planning new facilities so you are in the best position to move when the time is right for you.