Medical, health buildings bright spot in commercial real estate market

Health care reform could spur more growth

  • Dr. George Lowe is overseeing the renovations for Mercy Hospital where the old Giant food store in Timonium is being transformed into a hub that will house 15 primary physicians and offer various services in Timonium.
Dr. George Lowe is overseeing the renovations for Mercy Hospital… (Photo by Doug Kapustin/Special…)
September 17, 2010|By Andrea K. Walker, The Baltimore Sun

Mercy Medical Center is converting a former Giant grocery store in Lutherville into a hub where patients can go for lab work, minor surgeries and to visit primary care physicians.

Urgent care centers such as Patient First and Doctors Express are taking over retail spaces in high-traffic areas, including where a Roy Rogers fast-food restaurant was once located.

And Thomson Reuters this summer opened its first branch dedicated to health care research in Woodlawn office space, where more than two dozen employees will provide data and analysis to the federal government.

While the commercial real estate market as a whole experiences some of the highest vacancy rates in years and struggles to rebound, developers and brokers are seeing a bright spot in the demand for buildings that can house medical offices. The health care field is taking advantage of leasing deals and in some instances locating to desirable spaces that might not be available in boom times.

Some medical offices are expanding as national health care reform has the potential to prod growth in the industry. Thousands of new patients are expected to be added to the insurance rolls over the next four years.

"The general retail and office sectors have been beaten up pretty well," said Curtis H. Campbell, executive vice president of commercial real estate firm Wallace H. Campbell & Co. Inc. "The medical side is extremely stable and a potential growth area."

The Baltimore-based real estate firm has been able to weather the financial downturn because of its medical office and health care practice. The firm's medical properties are 90 percent to 100 percent leased, particularly ones located closest to hospitals, Campbell said.

The firm also is seeing some interest in health-related companies wanting to move to general office space. It recently brokered the deal for Bravo Health Inc., the Baltimore insurance company, to move into a 13,000-square-foot space at the Parren J. Mitchell Business Center near downtown Baltimore on Martin Luther King Bourlevard.

Bravo Health, which agreed last month to be acquired by Tennessee-based HealthSpring Inc. for $545 million, signed a lease to open an advanced care center in the office building to provide nonemergency care. It said it plans to open more centers in the area in the near future.

The medical office vacancy rate for the Baltimore region was 10 percent in the second quarter, compared to nearly 12 percent in the general commercial sector, according to Cushman & Wakefield.

Medical office tenants are historically more stable because the health care industry is somewhat recession-proof — people get sick and need doctors no matter the state of the economy. The industry also has grown with the aging of the population.

Health care spending represented about 17 percent of GDP in 2009 and is expected to reach 21 percent by 2019, according to the Office of the Actuary, Center for Medicare and Medicaid Services. Many believe health care will continue to outpace growth of the overall economy,

Doctors like to stay in one place so patients can easily locate them and because the build-out costs of a new medical office are pricey — making them highly sought-after tenants by brokers and developers.

Hospitals also are changing business models to meet the needs of patients, who want more convenient care. City-based hospitals are expanding their reach with satellite offices in the suburbs, while urgent care centers are catering to the needs of a busy public that wants quick access to health care.

Mercy Medical Center in downtown Baltimore is turning the produce and meat aisles of the former Giant into medical offices that will house 15 primary physicians. The center is part of a plan by Mercy to open several hubs across the region and is being promoted as one-stop shopping for patients.

"The trend is that folks don't want to go downtown for much of anything," said George Lowe, Mercy's vice president of primary care and the medical director of the new Lutherville hub. "Mercy's vision is to have a window to the communities outside of downtown and provide health care to those communities."

More than $2 billion in expansion projects at the main campuses of area hospitals also is driving development near those facilities. Johns Hopkins Medicine, Mercy Medical Center and the University of Maryland Medical Center are among the hospitals replacing old buildings or adding emergency rooms, operating suites or other facilities.

Office projects and mixed-use buildings have sprouted up around many of these hospitals.

In some instances, hospitals are partnering with developers who own and build offices that hospitals then lease. LifeBridge Health, for instance, is leasing the Northwest Hospital Professional Center it runs on the grounds of Northwest Hospital in Owings Mills.

But medical tenants aren't just moving into spaces traditionally occupied by health care tenants.

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