It is no secret, physicians are looking for ways to reduce expenses. Fueled by declining revenues, insurance reimbursement issues and a multitude of uncertainty, most are either downsizing their practice space or joining larger groups or systems in order to reduce the effects of less revenue and greater liabilities. If you are in a long term lease for more space than you currently require and would like to reduce your liability, then subleasing space may be the right option.
Subleasing by physicians to physicians where referral is obtained is common. In most cases, medical providers may decide to lease more space than what is needed to sublease additional space to medical providers.
- Two years or more remain on the lease (the shorter the term, the harder it will be to sublease without a large discount to the rent);
- Space offered on a shared basis includes prime space (windows) in conjunction with less desirable space (interior);
- Tenant is willing to be flexible with concessions (i.e., free rent, improvements to the space, rental abatement, furniture, equipment or shared resources in the event of shared sublease);
- The space is presentable. If not, improvement allowances or, if shell, the ability to ‘turnkey’ a space should be ample and performed quickly.
Once you have determined that a medical space can be competitive, a proper determination of pricing should be undertaken. The pricing structure for subleasing the entire space will be different from the structure for subleasing a few offices within your space.
To price a space typically these general factors are considered:
- The condition of the overall medical and office market;
- Length of the remaining lease term;
- The condition of the space (need for improvements);
- The current lease rent and how it compares with the market;
- Understand what the direct rents are in the building and what other sublease rents are for comparable sublease space;
- Understand who will be in your pool of potential subtenants.
- And, most importantly, have a qualified representative review the lease for language that may be conducive or restrictive to subleasing.
In almost all cases in today’s market, medical sublease rental rates are discounted from that of the current lease rate. Subleasing space is also a time sensitive. As time passes, the space may become less desirable and the lost income
Therefore, consider being aggressive and flexible from the outset. Be sure to havea representative price and record activity on the sublease (i.e., number of tours, number of proposals, etc.) every quarter and adjust as needed. Do not let any sublease become stagnant. Whether you are looking to sublease through shared space to vacant space, remember that the goal is to reduce the lease liability, not eliminate it.
We have included an opportunity that is for sublease in Humble, Texas. Humble Medical Office Building (Abbreviated Sublease Package – Contact MREA for Complete Offering Memorandum)
Please let MREA know how we can provide assistance for this or other healthcare real estate opportunities.