The race for space: A medical office building boom

The U.S. is in the middle of a historically high rate of medical office construction. Why is it happening, and how long can it last?

By Bob Cook, AMNews staff. Feb. 26, 2007.

When MidAmerica Cardiovascular Consultants of Oak Lawn, Ill., moves into its half of a newly built 30,000-square-foot facility this fall, it will be among the large number of practices helping to make medical office construction one of the country's hottest growth industries.

About 13 million square feet of medical office space is expected to be built in 2007, down only slightly from the record 13.7 million square feet added in 2005 and 13.2 million in 2006, according to Marcus & Millichap, a national real estate brokerage firm. That's well above the average 8.5 million square feet that was added each year between 2000 and 2004, a number that was already historically high.

The boom in the medical office construction industry isn't expected to end anytime soon. Rents are going up, vacancy rates are dropping or remaining stable, and existing, highly desirable medical buildings are still fetching premium prices, a sign that the demand for medical offices is a long way from being sated.

Analysts say there are plenty of reasons that medical office construction is so hot: the rush to build in fast-growing suburbs; medical and information technology needs that can't be handled in existing buildings; pent-up demand from practices for extra space; and the migration of more procedures from the hospital to an outpatient setting. A concurrent hospital construction boom -- a record $23.7 billion in 2005, according to the U.S. Census Bureau -- also ends up creating new office space.