With higher interest rates and challenges in the healthcare industry, some ground-up new development is on pause, causing second-generation or existing space to attract attention. Illinois Real Estate Journal recently spoke with HSA PrimeCare Executive Vice President Bob Titzer to delve deeper into its benefits for both users and owners.
Locations Are Often Closer to Patients
One major advantage of second-generation spaces is their accessibility. Second-generation spaces have already been strategically deployed within communities to ensure optimal reach for the patient base, which can potentially attract a larger clientele.
Buildouts Are Less Costly Than Ground-Up Construction
Compared to new construction, the cost of interior buildouts in second-generation spaces is significantly lower. With the shell of the building is already in place, landlords are responsible for customizing the interiors to suit the tenants’ specific needs.
Titzer said the past few years have witnessed a substantial increase in the cost of interior buildouts, making them financially burdensome for tenants, making repurposing existing infrastructure an affordable solution. What with current economic challenges, tenants are seeking available spaces that require less than a full-scale investment to get their operations up and running.
Quicker Way to Get Facilities Up and Running
Time is of the essence in today’s market, and second-generation spaces provide a quicker path to operational readiness compared to new construction. Due to ongoing supply chain limitations, obtaining construction materials in a timely manner has become challenging. By working with what already exists, healthcare providers can avoid potential delays caused by material shortages, allowing them to serve patients sooner and more efficiently.
Easier Commitment in a Fluctuating Interest Rate Environment
The volatile interest rate environment has increased the cost of everything landlords need to provide. However, when leasing second-generation spaces, healthcare tenants can bypass the need to finance an entire building from scratch, therefore reducing financial burden and simplifying the commitment process.
New Revenue Stream for Property Owners
Second-generation spaces not only benefit tenants, but also present a new revenue stream for property owners. According to Titzer, owners who have experienced persistent vacancies in their properties now find increased interest from medical providers seeking to lease these spaces. Tenants who might have previously chosen to build new facilities instead of retrofitting existing buildings, are now drawn to the low-cost alternative for the reasons outlined above, making it a win-win solution for both parties.
When asked about the availability of existing space to meet the rising demand, Titzer highlighted that while there is enough medical space, it’s not always optimally located. There are still underserved suburban areas, and he said we will soon see an increase in new construction to address these gaps. Northwest Indiana, for example, has seen a surge in new healthcare facilities to account for its expanding population.
Second-generation spaces offer healthcare providers numerous advantages in today’s challenging real estate landscape. The proximity to patients, cost-effectiveness, faster implementation, reduced commitment complexity and new revenue opportunities make them an appealing option. As the demand for healthcare services continues to grow, second-generation spaces provide a viable solution for tenants and property owners alike, ensuring the efficient delivery of care to communities in need.
