Medical office projects spur development in Spokane

Specialized healthcare-related office uses driving new developments around Spokane


Medical office buildings pose unique challenges to developers, however, because they require more specialized features than other buildings and must match a tenant's precise specifications, he says. As a result, such developments have become a niche segment in the real estate industry, he says.

"It's an emerging area of expertise, no question," Black says.

Given the considerable cost of construction, rental rates for medical office space are higher than for other office uses, which also is attractive to developers, he says. The average rental rate for medical office space here is $20 per square foot, compared with the $13 to $17 average rate for Class A space, he says.

Investment

Rod Emerson, administrator at Spokane Ear, Nose & Throat Clinic PS, says that physicians' groups are looking into developing their own buildings, rather than leasing from a hospital or developer, because they want to determine their building's size and configuration and want to be able to set their own lease rates. Earlier this year, Spokane ENT built a satellite facility on the North Side to replace its leased space near Holy Family Hospital.

"It becomes an investment, an asset for you," Emerson says. "There's also more overall growth and demand on specialties; we're having a hard time providing enough access to patients."

Space in Spokane ENT's new building, at 9922 N. Nevada, is filling up rapidly, he says. The physicians' group, which includes 13 doctors and one physician's assistant at two locations, plans to hire two more doctors this summer, and is looking at developing a third location in the next few years, Emerson says.

When doctors search.for a site for a medical office, they look for a convenient location for their patients, Stamper says. If they perform procedures primarily in a hospital setting, they need to be close to a hospital campus, but if they don't they can be more flexible, he says.

Since doctors these days are performing more office-based procedures and offering in-house diagnostic imaging services, they need more space for their offices. Because Spokane is a medical research center, many doctors are involved in clinical trials and need additional space for research. Also, patients expect doctor's offices to have a clean, modern look. Because of those preferences, as well as the doctors' needs for plenty of space, it often makes more sense to build a new structure than to remodel a space, Stamper says.

Event though more doctors and developers are interested in constructing medical office buildings, rising construction costs sometimes have put a damper on their plans, Stamper says. Interest rates remain pretty attractive, however, so some physicians' groups are deciding to go ahead with projects anyway, he says.

Although owning their buildings can provide doctors with additional income after they retire, it also can cause headaches when they're making long-term ownership decisions, Stamper says. Physicians' groups must decide when to let younger doctors in a practice buy into the building. They also must determine whether to sell the building at some point to the younger members of the practice or sell it to a developer who would lease out the building to the practice, he says.

Zoning

Spokane businessman Mark Wrenn says he originally decided to develop a medical office building on the South Hill for purely practical reasons. The land he bought along Grand Boulevard just east of Manito Park was zoned R3, which meant he could only build a multifamily residential structure or a medical office complex.

"I wanted something that would provide a nice, stable long-term income that also would fit in with the neighborhood," says Wrenn, who developed the project through a company called Jamesee LLC. "It's more expensive on the build-out, but a better option in the long run."

Exterior work on the development, which consists of two medical office buildings, is nearly completed, and Wrenn says he is negotiating with a number of potential tenants that are interested in leasing space in the structure.