Many physician practices that purchase medical office buildings may find that they have unused office space for one reason or the other. This may be because they bought or leased a larger space than they currently need with the intention of having room for future growth, or because a previously used space became available due to a clinician leaving the practice, working at another location some days of the week, or otherwise. As the private practice will still have to pay rent and/or maintenance on these spaces, many practices look into solutions to recoup the lost opportunity cost of unused spaces. Similarly, those practices just starting out or existing as a micropractice looking to keep overhead low or only working a few days a week may want to lease medical office space. Because of this, we often see members of our physician communities wanting to post medical office spaces for rent or seeking medical offices, and have created a medical office space listing directory to match the parties. Below, we’ll cover some key points to know about listing your medical office space for rent.Â
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Resource for renting out your medical space
Due to the number of members of our online physician community who were looking to sublease space for their private practice and to help members effectively advertise space in their medical buildings, we started an office space listing directory as a resource for our physician members.
If you're interested in listing space available in your medical office building, fill out our advertising form for office space today to let us know. A PSG member will follow up with you when we receive the form with next steps!
Medical office spaces - supply and demand
Because not all office spaces are appropriate for medical use, medical office buildings are in high demand, especially as healthcare needs throughout the country increase with an aging population and people are living longer with chronic disease.Â
As more clinicians venture out on their own but want jobs with more flexibility and only work a few days a week or a few hours a day, they may not want the overhead of having their own space. For example, those running micropractices or smaller direct primary care or direct specialty care practices often rent out space from other medical professionals.
Additionally, as more and more practices consolidate and look to expand into new areas, the number of tenants looking to test out a geographic area before putting down their own more permanent footprint is also increasing.
Benefits of renting out your medical office space
If you are fortunate enough to own a well-equipped medical office space, you likely have something that others want. Some major reasons to consider renting out the space include:
If you’re not utilizing it to capacity, you are likely leaving money on the table by not finding another use for it. This can be a great ancillary practice income stream.
It’s also a great way to decrease your own practice overhead, especially if the person renting it from you wants to share front office staff or other common expenses.
It can increase your own patient base if the other party generates referrals to you or patients visiting them find it convenient to also establish care with you.
They may take it upon themselves to make improvements to the space to fit their needs which could increase the value of your medical office building.
What kind of space do I need to have available before considering renting out office space?
This will depend on the tenant. There are some people who are running micropractices that may literally just need one exam room. However, others will need a few exam rooms, a waiting area, a nursing or MA station, a physician office, and/or a check-in desk. You should be honest with yourself about how much space you can really give up, as you don’t want to create daily stress or conflicts as both parties struggle to find some extra space.Â
Also note that you may have fluctuating space available, and you should know whether you’re going to offer the tenant the exact same rooms every time, or if they need to be okay with moving around based on which practitioner in your office isn’t working that day.
Who should I rent or sublease my medical office space to?
A variety of individuals or companies may be interested in leasing or subleasing your medical office space. Some examples include:
Other physicians or physician practices
Other non-physician clinicians with their own practices
Medically related services such as massage, physical therapy, medical spa, nutritionist, etc.
Non-medical businesses (but may not get the same rent from someone that could use any office space that’s not outfitted for medical)
How do I know if somebody will be a good tenant in my medical office space?
You’ll definitely want to make sure the potential renter is not just somebody that will pay on time, but also somebody that’s a good fit for you and your practice. As you’ll be sharing things like parking, potentially reception areas, and more, you want to make sure that their patient base is compatible with yours. For example, having sick kids in your waiting area may not be a good thing if you run a geriatrics practice. Make sure that the speed of throughput through their practice doesn’t interfere with how you run yours.
Ask questions about how many staff they’ll have, what space their staff will need in addition to the clinical rooms, and any other facilities they need to have access to so that you’re not underestimating how much space they’ll really use.
Because to some degree there is always association by proximity, you’ll also want to make sure you believe in the other party’s practice. You want to make sure their credentials and licenses are satisfactory, and that they don’t have any major legal, ethical, or reputation issues. Having issues any ongoing issues may also threaten the stability of their practice and leave you suddenly without a paying tenant.
How do I determine what a fair amount for rent is for subleasing my medical office space?
How you set rent is going to be determined by what market forces allow, but also what unique features your practice space has that make it particularly attractive, and how the potential tenant is going to use the space. If they’re only using it 2 days a week, they likely won’t be willing to pay as though they were using it 5 days a week, so you may find yourself pro-rating whatever you determine the fair market value of the rental is. Many places that rent medical office space to multiple practitioners will divide up the rent into half day portions to allow people to pay based on usage. This is sometimes referred to as a medical office timeshare arrangement and is usually done in increments of 4 hours.Â
We’ve seen lots of unique and creative methods for coming to rent, but you will want to start by looking up what similar medical office spaces are going for. Usually these will list rent per square foot.Â
Additionally, if you’re providing any other services that are included or prorated by their usage, make sure you factor that in, such as utilities, telecommunication services, internet, cleaning, snow or leaf removal, etc. Â
What do I need to know about Fair Market Value when renting out office space?
If there’s any question of whether there may be a Stark law violation, make sure you talk to a healthcare attorney to ensure that nobody can make the claim that you are benefiting in some way that is noncompliant. This is particularly true if the potential tenant is a hospital system or other medical facility that benefits from your referrals. In this case you may need an appraisal that accounts for exactly how the space is being used and how much, including things like square footage, furniture, equipment, and other facilities and services.
What to include in your rental agreement for your medical office space
There are several things that your rental agreement should address, and this should be crafted carefully both for your protection and that of the tenant. It should outline as many of the terms of the agreement as possible, including:Â
Rent
Length of the lease (include whether there is an option for month-to-month extension, and if there are any rent escalators built in if a new lease is not signed)
When payments are due and how they should be paid, as well as late fees
Who pays for what - utilities, maintenance, repairs, cleaning, etc
Conditions under which the agreement can be terminated. This is for the protection of both, as there may be a reason either party wants out. Include fees for terminating early, as well as what the notice period needs to be
Company policies or rules that need to be respected - this could include things like dress codes, what can be placed in which spaces, any alterations to spaces, handling of biohazard materials, etc
Rules for shared spaces such as parking, waiting room space, staff gathering places, etc.Â
Move in dates
Penalties for damages
Conclusion
Renting out your medical office space has many benefits, but should not be undertaken lightly. You want to make sure that the new tenant won’t get in the way of your existing operations, and that they’re a good fit for you to share space and potentially staff and by extension, reputation, with. You’ll also want to make sure expectations are clear and outlined in a well drafted lease agreement, and that there are no violations of Stark laws. If done correctly, this can be a great arrangement for both parties!
If you decide to list your office space for rent and need to find tenants, consider using our office space directory!  We offer a directory were private practices can advertise space to rent to other members of our online physician community. Fill out our form for advertising an office space to get started.
Additional resources for physicians in private practice
Explore related PSG resources:
Visit our free educational virtual events for physicians page to sign up for our private practice educational series. You can also find links there for replays of past events.