A 27,000-square-foot medical office building mostly occupied by Kaiser Permanente at 24502 Pacific Park in Aliso Viejo recently sold for $7 million, according to an announcement from Colliers International.
The building was purchased by Irvine-based Accretive Realty Advisors, a real estate investment company that exclusively purchases medical offices. The deal closed Aug. 10, according to Colliers spokeswoman Megan Morales.
Kaiser takes up two of the building’s three floors, and the office that was built in 1987 holds several local physicians on the other floor.
While other sectors of the economy remain weak, medical offices have continued to be a strong investment, said Colliers International Vice President John Wadsworth, who brokered the deal.
He said the highest prices go to medical space with good location. That means areas with strong local hospitals that are mostly built-out and have lots of residents wealthy enough to be choosy about their health care.
Wadsworth said the price of medical office space is driven up by the scarcity of developable land.
“In South Orange County and in specific pockets of Orange County and Los Angeles, it’s very difficult to develop more medical office buildings,” the vice president said. “First of all land is very expensive. Even in a down market land seems to be a commodity. Well-located parcels are still not cheap to buy.”
And building medical offices is especially expensive, he said, because these buildings require more parking. The typical office space requires about four parking spaces per thousand feet of building, but medical office buildings require as many as seven spaces per thousand feet.
Why so much parking for medical buildings? Wadsworth explains that medical care has changed from a fee-for-service model 15 years ago to more of a managed care model today. The effect is that doctors have to see more patients to make the same amount of money they did 15 years ago.
“The physicians were working less and making more,” Wadsworth said. “Now they’re working more and making less.”
To take care of all those patients, doctors need more parking spaces, which drives up the cost of medical buildings.
In addition, tenants tend to stay longer once they’re inside a medical building, Wadsworth said. Medical tenants tend to spend more to set up their offices, and special equipment for surgery and other procedures can cost as much as $250 a foot to build, making it difficult to leave.
Aliso Viejo is exactly the kind of place where medical buildings will fetch a high price, Wadsworth said.
“It’s a very constrained city in terms of land,” he said. “There’s no land I’m aware of entitled for medical office space. It’s a market I think will continue to be tight for medical spaces.”