The commercial real estate landscape is evolving, and traditional office buildings are adapting in unexpected ways. One of the most significant shifts in recent years has been the increasing percentage of traditional office buildings that will consider medical tenants in spaces historically reserved for professional office use. This trend is reshaping both traditional office buildings and medical practices, offering unique opportunities and challenges for landlords and tenants alike.

The Market-Driven Shift

The pandemic has left many traditional office buildings grappling with high vacancy rates. With remote and hybrid work reducing demand for office space, landlords are seeking creative solutions to backfill empty floors. Enter medical tenants: the only office sector that has shown consistent growth since 2020. Medical practices, ranging from private specialists to outpatient surgery centers, are seizing the opportunity to relocate into traditional office buildings. For many landlords, this shift is driven by financial necessity. However, accommodating medical tenants comes with its own set of challenges.

Pros of Welcoming Medical Tenants

  1. Stabilizing Occupancy Rates – Medical tenants provide a steady, long-term income stream. Once a practice is established, it’s unlikely to move due to the logistical challenges of relocating and the importance of maintaining a consistent location for patients.
  2. Diverse Tenant Mix – Adding medical tenants diversifies a building’s portfolio, reducing overreliance on traditional office users. This is especially appealing in today’s volatile office market.
  3. Improved Financial Outcomes for Medical Tenants – For medical practices, moving into traditional office buildings can mean lower rents, better concessions, and access to higher-quality spaces. Landlords in traditional office settings may offer more generous tenant improvement allowances than those in dedicated medical office buildings, where deals are often tougher to negotiate.
  4. Suburban Expansion Opportunities – As remote work continues, medical tenants are increasingly moving to suburban locations to be closer to patients who no longer commute into major cities. This trend is helping landlords fill suburban office spaces while allowing medical practices to capture a more local clientele.

Challenges of Transitioning to Medical Use

  1. Infrastructure Requirements – Medical tenants often require more extensive buildouts, including additional plumbing, specialized electrical capacity, and parking. While many of these needs can be addressed with funding, they add complexity to leasing negotiations.
  2. Parking Demands – Unlike traditional office tenants, medical practices often require significantly more parking. This can limit the number of medical tenants a building can accommodate, especially in urban environments.
  3. Building Compatibility – Not all buildings are suited for medical tenants. Factors such as proximity to parking, building hours, and after-hours access systems can pose challenges. Additionally, some landlords and tenants worry about increased foot traffic, medical waste, or disruptions to traditional office users.
  4. Referral Ecosystem Trade-offs – Medical practices in dedicated medical office buildings benefit from a built-in referral network among tenants. Moving to a traditional office space can mean losing this synergy, which is a critical consideration for certain specialties.

Improved Financial Outcomes for Medical Tenants

Welcoming medical tenants not only benefits landlords but also offers significant financial advantages for the tenants themselves. For medical practices, moving into traditional office buildings can lead to lower rents, better concessions, and access to higher-quality spaces. Landlords in traditional office settings often provide more generous tenant improvement allowances than those typically found in dedicated medical office buildings, where terms can be more rigid.

A client of ours illustrates these benefits: A medical tenant in Vienna, Virginia, faced an above-market rent proposal with minimal concessions when their lease was up for renewal. After careful analysis, we identified a superior option in McLean, Virginia, where the building offered newer facilities, better parking availability, and more favorable lease terms, including lower rent and more than double the free rent and tenant improvement package. This relocation also enabled the tenant to convert a first-floor office space into a surgery center, which proved to be a successful venture for both the tenant and the building owner.

Such examples highlight how creative solutions can help medical tenants achieve better financial outcomes while aligning with landlords’ goals of stabilizing occupancy rates and diversifying tenant portfolios.

Future Predictions and Trends

Several trends are shaping the integration of medical tenants into traditional office spaces. Suburban growth is driving demand for practices closer to where patients live, reflecting broader shifts in work and lifestyle patterns. Distressed office buildings, available at significant discounts, offer opportunities for medical practices to purchase and retrofit spaces, increasing owner-occupied facilities. Landlords are also experimenting with hybrid models, dedicating specific floors to medical tenants to address infrastructure needs and compatibility with traditional users. These developments highlight a growing shift in how office spaces adapt to the evolving demands of medical tenants.

For traditional office landlords, welcoming medical tenants can be a strategic way to navigate a challenging market. Success depends on careful planning, from understanding the unique needs of medical practices to balancing financial viability with tenant satisfaction.