Health-care spending is growing in Canada, giving a boost to medical office real estate in B.C., say experts.
Health expenditure by the public and private sectors is forecast to grow by 4.2 per cent in 2025 and is projected to reach $399 billion, according to a Nov. 27 report by the Canadian Institute for Health Information (CIHI).
This spending—an estimated 12.7 per cent of GDP—is being driven by inflation, population growth, population aging and service utilization, CIHI said.
It is also bolstering demand for medical office buildings, said Greg Appelt of Toronto-based Appelt Properties.
“The most expensive place to treat a patient is on a hospital campus. It’s very expensive real estate,” he said.
“So [provinces] are pushing a lot of those services which were once centralized on hospital campus into community. Not only that, but it’s more convenient for patients, it’s often closer to their homes and it’s just a preferred place to seek medical attention.”
Appelt started his career as a physician in allergy and immunology, and built his first medical office building in 2010 for himself and a few colleagues. He “fell in love with real estate” and founded his namesake company to develop and acquire medical buildings across the country.
His current projects in B.C. include Atlas, a mixed-use project across the street from Surrey Memorial Hospital that is planned to have 67,000 square feet of medical outpatient space in the podium and 463 rental apartments above. The project broke ground three weeks ago and is expected to complete in 2029.
Tenants could include family physicians, specialists and service providers in radiology, laboratory services, physiotherapy and audiology, while at-grade retail could include pharmacy, optical and food services, Appelt said.
“It’s a distinct asset class,” he said.
“People often erroneously categorize it under office, but it’s not. [Comparing] a medical building to an office building is like [comparing] an apartment building to a hotel—they both have beds in them but they are very different.”
Appelt said medical offices have unique requirements because of the large volume of patients who are ill, use wheelchairs and interact with parking, elevators and hallways differently.
There are also special considerations around airflow, plumbing and electricity. Tenants tend to occupy smaller spaces and interact with each other to offer patients a convenient “one-stop shop” for their prescriptions, lab work, imaging and referrals.
“The typical office building, you could have a tenant that occupies 20,000 square feet. In a medical building, your average tenant size is closer to 2,000 so you have to design your floor plates to be able to accommodate a variety of small uses,” he said.
In Vancouver, medical professionals will typically utilize office buildings close to major health-care nodes. Examples are the stretch of the Broadway corridor from roughly Cambie to Oak streets and, to a lesser extent, along West 12th Street in the area around Vancouver General Hospital, said Andrew Petrozzi, director and head of Canada research with Newmark Group Inc.
One will also find medical office use in many buildings along Burrard Street from approximately Davie to Nelson streets near St. Paul’s Hospital. Many of these are typically older class B buildings, he said.
“More recently, developers have targeted medical professionals by building new strata office buildings near medical precincts targeting medical users,” Petrozzi said.
“Increasingly, the interest in owning their own real estate has been attractive for many medical professionals and groups who are looking at newer strata office developments.”
Raman Bayanzadeh, a Realtor with Royal LePage Commercial, said lenders offer attractive financing packages to dentists, family doctors and veterinary clinics that go up to 100 per cent of the value of the property and any improvements.
“The banks love them,” he said.
“In a down market right now, if there’s anyone that has access to good money, it’s health care.”
Because medical spaces require expensive fittings, landlords can secure long-term leases of 10 to 20 years with stable, low-risk, recession-proof tenants, Bayanzadeh said.
Meanwhile, “medtail”—medical retail—is being filled in by tenants relocating from higher-floor offices to the ground floor for greater accessibility and visibility.
B.C.’s aging population and their costly health-care needs create “ongoing, permanent demand” for medical real estate, Bayanzadeh said.
“I don’t think in B.C. or in Canada we have the facilities and space and the doctors to service that, so it’s a growth potential and a reality,” he said.
Original source: ca