High vacancy rates for medical office space in much of Central Florida has opened the door for sweetheart deals on new leases, but loans for outfitting and improving space are still hard to come by, say realtors and investors familiar with the market.

 

Recent developments around biotechnology and medical education in the Orlando area have bolstered the economy and brought an influx of new residents and healthcare professionals.

 

But with hundreds of thousands of additional square footage dumped on the market, these institutions have also created a glut of vacancies for medical office space – running 15-18 percent, among the highest in Central Florida.

 

As a result, competition among landlords is fierce for tenants in the healthcare sector, said Chris Kern, a realtor for Commercial Realty of Central Florida, which represents developers and healthcare groups looking to lease or buy property.

 

“Landlords are going to be as aggressive as they can to lease up the space,” Kern said. “They’d rather give some kind of concession than reduce their rate because that affects the market.”

 

High vacancies are giving doctors the upper hand, said Shannon Herring, realtor for CitiScape Orlando, which represents physician groups along with developers for the Fountains at Tivoli Place, a luxury medical office complex in Orlando.

 

“Doctors are usually getting about a month’s free rent for every year of their lease,” Herring said. “Or they can go in and ask for things like new carpeting and painting, but a lot are asking for exam rooms to be built in. The landlords are willing to do these deals rather than (have their property) sit there empty.”

 

Herring pointed to Orlando Orthopaedic Center, which recently moved into a new 40,000 square foot facility. “Construction prices are so low they could get tenant improvement allowances,” Herring said. “In a better economy they wouldn’t get all the incentives. So there is a lot of opportunity to go out and make deals for doctors.”

 

Even under tough economic conditions, the medical real estate market remains strong, Herring said. “All other areas are really suffering but for the past two or three years, the medical office side has done well.”

 

The Vascular Vein Centers in Orlando, sensing an opportunity for expansion, also recently moved into a larger medical office at the Waterford Medical Suites just down the road from its previous location.

 

“We want to offer a warm, comfortable, easily accessible office for our patients with plenty of space for our growing practice,” said Samuel Martin, MD, vascular surgeon and medical director.

 

Whether landlords can afford to pay for expensive remodels, and if not, whether the tenant can afford such improvements and pay to outfit their offices at the same time largely depends on securing a loan from the bank, which even for doctors can be difficult.

 

“They may be giving incentives, but in the market place out there – from what we’re seeing – only about 50 percent of landlords are able to pay for that build-out,” said Jason Scott, a real estate broker for Equity, a national commercial real estate firm with a branch office in Tampa.

 

Scott and his colleague Carleton Compton said it’s tougher than ever these days for doctors to get financing. For that reason, they say, for doctors owning their own real estate, it may be a good time to sell.

 

“Investors are begging for good solid medical investments,” Scott said. “So (owners) are able to get the highest return today by selling to an investor and agreeing to a long-term lease.”

 

Nat Smith, a real estate investor from North Carolina, said he considered buying property in three states including Central Florida and ultimately settled on a property in Tampa that he bought in February. A medical office and a bank were already tenants.

 

“Of any tenant that an investor or developer of a building wants, medical would be your number one tenant that you could possibly get,” Smith said. “You don’t have to worry about them paying their bills. They have a high investment in the building so they’re less likely to move. And they are a high prestige tenant so they attract other businesses.”

 

Marisa Manley, president of Healthcare Real Estate Advisors, which brokers real estate deals for medical providers and healthcare-related companies nationwide, heralds Central Florida as a good place for medical groups to grow. Manley, who works from New York City, returned in March from a trip to Tampa where she’s helping Ultimate Medical Academy expand its campuses.

 

“Florida is attractive because it tends to be pretty business friendly,” Manley said. “Because of labor costs, real estate costs and the general climate toward business, this has turned out to be a good market for them.”