New York Is Headed for a Medical Office Leasing Boom
Demand for neighborhood health clinics will explode in the next decade, JLL report says
By Abigail Nehring March 18, 2024 4:49 pm
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More New Yorkers can expect to see medical providers set up shop in their neighborhoods soon.
Medical office inventory in New York City reached 6.3 million square feet in the fourth quarter of 2023, and it will get a lot bigger in the next decade, according to a report by JLL (JLL).
The city’s medical office footprint grew by 40 percent between June and December last year, adding 1.8 million square feet in just six months, JLL found.
And the sector’s vacancy rate of 8 percent in the outer boroughs and 15.7 percent in Manhattan would make office landlords green with envy. Manhattan’s overall office vacancy rate has hovered between 15 and 20 percent for several quarters now.
Across the entire tri-state region, JLL estimated the medical office market comprised 73 million square feet at the end of last year.
And it will continue growing as the number of octogenarians in the United States increases 50 percent within this decade, and demand for outpatient health care services increases between 6 and 10 percent in the next five years.
“The baby boomer generation is consuming more health care services than previous generations,” said Matthew Coursen, executive managing director of JLL’s health care business for the mid-Atlantic region. “They’re living longer, and they’re focusing more on their health. That is definitely a big factor here.”
Coursen said the uptick in demand has been big enough that the brokerage is seeing some owners undertake adaptive reuse projects to welcome medical tenants into office space.
That means adding new plumbing hookups for sinks in exam rooms, increasing ceiling heights, and making upgrades to power and HVAC systems to accommodate medical equipment that runs past normal business hours, according to Coursen.
The need for neighborhood health clinics and outpatient specialists is pushing providers into retail, office and mixed-use buildings across the boroughs, according to JLL.
BioLife Plasma Services signed Manhattan’s largest medical lease of the fourth quarter, taking 16,698 square feet at Blumenfeld Development Group and Brookfield Properties’ East River Plaza shopping center in Harlem.
But the lower cost per square foot outside of Manhattan is a big draw.
Average asking rent for medical office space in the outer boroughs of New York City was $42.44 per square foot at the end of the fourth quarter, compared to $64.09 per square foot in Manhattan.
Hospital mergers accelerated during the COVID-19 pandemic, and have become another factor driving providers to open clinics closer to where their patients live, according to JLL.
“The consolidation of both physician practice groups and hospitals into these larger umbrella health systems is something that’s going to continue accelerating,” Coursen said. “All of those institutions are facing margin pressure. They’re trying to find the most efficient way to deliver care to their patients.”
Abigail Nehring can be reached at anehring@commercialobserver.com.
