February 1, 2023
Physicians heading into private practice have dozens of decisions to make, but few will have more consequence than where you locate your medical office.
Location will impact your accessible market, your competition, and your startup costs. It will have a substantial effect on both the quality of care and the patient experience you deliver. Perhaps most important, it will shape how you live your daily life. Physicians who take this seriously will set themselves up for long-term success.
This is not the time to do things yourself, rely on friendly advice, or take the first option you encounter. Rather, it is a time to seek out expert counsel, use key data sets to guide decisions, and be ready to spend several months creating a sound foundation for your new business. Anything less can expose your practice to risk - costing you money and affecting your growth trajectory.
“The good news is, as a physician, you can make a smart, long-term decision,” said Nathan Crowe, a senior vice president who specializes in healthcare at Scheer Partners, a commercial real estate firm headquartered in Maryland. “If you are thoughtful on the front end about what you want your career to look like and what you want your patient base to look like, you can be in a facility for a very, very long time.”
Experts say that choosing a location for their practice starts with a lifestyle question: where do you want to live?
While there are probably doctors who can locate anywhere in the country, most physicians have existing ties to a specific city or state. Perhaps you are leaving a practice and have a base of patients, referrals and contacts. Or maybe you have a spouse and a family that keeps you rooted. It could also be that you simply like where you live and want to stay—or you like a different location and want to move.
Whatever the case, most doctors have some sense of where they want to build their lives. Your answer will set the first set of boundaries for determining where to locate your medical office. When the lifestyle question is answered, medical and business concerns take over.
The days of picking an area and then rushing to see property are largely gone. Of course, you will tour facilities as part of the selection process. But you are far more likely to hold meetings over data tables and heat maps before that begins.
Choosing office space today starts with data, and not just information about lease or purchase costs. Real estate experts can overlay a map of your area with useful information about the population, such as ages, household incomes—even the insurance coverage. The result is that you can see an incredibly detailed profile of the patient base. That data allows you to narrow the choices by leveraging your business model and the type of patients you want to attract.
“The health care provider can describe who their ideal patient is,” said Colin Carr, founder of Carr Healthcare Realty, which operates nationwide and has completed thousands of transactions since 2009. “We can search the market and provide a heatmap of demographics that meet those requirements. You can figure out where the pockets are that have the highest percentage of people you're looking for.”
For example, a plastic surgeon’s target market may be men and women over 40 with an average income that exceeds $150,000 and that have private insurance. The doctor may be looking to find those people within a 20-mile radius of the hospital where they operate. Using multiple data sets, they can find the area with the highest concentration of people who match that profile.
The research can expand to cover other factors as well, including where competitors practice. “Some people want to remain a specific distance away from a competitor, while other people actually want to be as close as possible,” Carr said.
Hospitals, labs, therapeutic facilities and referring doctors can all be factored in. So can the location of existing patients. If you have a noncompete clause that prevents you from practicing in a certain area, say 2-5 miles from your current practice, that too can impact the map.
What should emerge is a location for your medical office that is optimized for your practice and a list of properties for purchase or lease within that zone. Of course, real estate experts caution that nothing is perfect and that a dose of realism helps. But they also agree that using data to guide location is far better than hunches and patchwork advice.
Your location should also take into account how you plan to acquire patients. For example, if most patients come via referral, it may be important to locate near referring physicians. But that is not the only model in which location matters. Urgent care facilities, for example, often want to locate in retail spaces. Dentists also often prefer stand-alone facilities.
“They can locate closer to where the patients live and it can be a more convenient experience for the patient,” Crowe said. “And, they pick up more patients from the signage and people driving by them every day than they would if they were in a medical office building.”
It is worth noting that location is something that matters to patients. A study done for Weatherby Healthcare, a national locum tenens staffer, showed that 70% of patients say a convenient location is critical, or at least very important, when they choose a doctor.
This can work for other specialists, too. Dr. Robyn Siperstein, a dermatologist in Boca Raton, opted for stand-alone offices.
“I had this vision of a standalone office with a huge sign on it that everybody could see, and it actually was a huge part of our growth,” she said. “Everybody told me I was crazy, but you can see the trajectory. We saw the most growth when I opened up the offices with that big sign.”
Siperstein’s 11-doctor practice, in business for a dozen years and now with two locations, is adding almost 1,000 new patients a month.
Of course, cost will be a major factor in any decision involving location. Rent for office space is often the second-largest expense incurred by a practice behind staffing. But there are many factors that impact that cost.
To start with, the cost of medical office space is calibrated on a per-square-foot basis, like other commercial real estate. It varies widely across the country and within each market. Real estate experts say it can change week to week, so obtaining current local data is important.
Square footage is also only part of the picture. Almost every medical office will need changes, known as the “buildout,” which can vary substantially in scope and cost. Raw space will need to be completely built out, while moving into an existing office can require far less work. Equipment needs also play a role. This often makes obtaining office space a months-long prospect, not just for the construction itself but for the permitting and regulatory process.
While this can make comparing properties difficult, Carr said that a picture ultimately emerges. “If you go to the market, look at three or four options, and then start running the numbers, it becomes evident very quickly—either you can or cannot afford the property,” he said. “Price is going to drive a lot of these decisions.”
Because of the complexity involved in locating a medical office, real estate experts say that a property search is not something to undertake alone. Saving money by doing things yourself can be a false economy if it leads to unforeseen problems, surprise costs, and delays. Instead, they recommend building a team of professionals to ensure you see everything coming, comply with regulations, minimize costs, and stay on schedule.
That starts with a tenant’s agent, or what is referred to in the residential real estate market as a buyer’s agent. This agent represents you and only you. They will earn a commission, often between 2% and 4%, but that commission is traditionally paid by the landlord or seller as part of the transaction.
Your agent will be the one who provides key data, surfaces properties, and guides the transaction. They can also help you find other members of your team, which will likely include a lawyer to review leases and contracts; an architect to plan the buildout; and a contractor to do the construction.
Crowe said the right agent can also play one more vital function. “A good broker will sort of quarterback or project manage that whole team,” he said. “We're your real estate broker, but you could also call us your process manager.”
Hiring expert help can prevent problems, some of which can be severe. One plastic surgeon in Florida, for example, spent months choosing a space and building it out. “It seemed good and I had a decent lease for two years,” she said. “But there was an escalation clause in it that I didn't see because I'm not a lawyer and I didn't hire a lawyer. And so after two years, my rent doubled and there was nothing I could do about it.”
The increased rent cut into her salary substantially. “I was gonna move my office, but I had just spent $300,000 renovating—I couldn't.”
Because medical leases are often long-term, sometimes five or 10 years, there is usually negotiation to be done, perhaps more so than in a residential real estate transaction. Landlords are sometimes willing to help fund the buildout or offer several months rent-free while the physician builds their practice.
Carr says that knowing the landlord’s motivation and their financial position, along with the overall market conditions and other local factors, can help forecast what to expect. The negotiation is important, experts say, because it can have a major impact both on startup costs and on operating expenses moving forward.
As Carr put it, “Ultimately, it's going to be which property you like the best, which one's going to be the most conducive to your practice and which one fits your budget.”