Medical Office Space vs Retail: What’s the Better Investment in Utah County Right Now?

If you’re stepping into the world of commercial real estate investment in Utah County, you’re probably wondering: should I build medical office space or retail? Both sectors are showing low vacancy rates, which sounds promising, but the devil’s in the details. Let’s break down the pros and cons of each, so you can make a smart, informed decision about where to put your money.

Why Utah County’s Market Conditions Matter

Utah County is booming. With a growing population, expanding healthcare needs, and a vibrant retail scene, the demand for commercial spaces is high. Vacancy rates for both medical office and retail spaces are low, meaning there’s a shortage of available properties. This scarcity can drive up rental rates and property values, making it a potentially lucrative time to invest.

But here’s the catch: low vacancy doesn’t automatically mean every investment is a winner. You need to consider factors like tenant stability, market trends, and long-term growth potential. So, let’s dive into the nitty-gritty of each product type.

Modern medical office building in Utah County

Medical Office Space: The Safe Bet or Risky Play?

Medical office space has been a hot topic lately. With an aging population and increasing healthcare demands, it’s tempting to think this is a goldmine. Here’s why it might be:

1. Stable Tenants

   Medical tenants tend to sign longer leases and are less likely to default. Doctors, dentists, and outpatient clinics need consistent, reliable spaces, which means steady income for you.

   
   

2. Recession-Resistant

   Healthcare is a necessity, not a luxury. Even during economic downturns, people still need medical care, so your investment is somewhat insulated from market swings.

   
   

3. Specialized Build-Outs

   Medical spaces often require specific build-outs like exam rooms, labs, and waiting areas. This can be a double-edged sword: it increases initial costs but also creates a barrier to entry for competitors, potentially reducing tenant turnover.

   
   

4. Location is Key

   Proximity to hospitals and residential areas is crucial. Utah County’s expanding healthcare infrastructure means demand for medical office space is likely to stay strong.

   
   

But don’t get too comfortable just yet. Here are some downsides:

• Higher Initial Costs

Building medical office space can be more expensive due to specialized requirements and compliance with healthcare regulations.

• Tenant Fit-Out Risks

If a tenant leaves, the space might need costly renovations to attract a new medical tenant or be converted for another use.

• Market Saturation Concerns

While vacancy is low now, overbuilding could lead to a glut, especially if healthcare providers consolidate or shift to telemedicine.

Retail Space: The Classic Investment with a Twist

Retail has been the backbone of commercial real estate for decades. But with the rise of e-commerce, is it still a good bet? In Utah County, retail spaces are still in demand, but the landscape is changing.

Here’s why retail might be a smart move:

1. Diverse Tenant Mix

   From restaurants to boutique shops, retail offers a variety of tenants. This diversity can spread risk and keep your property vibrant.

   
   

2. High Visibility and Foot Traffic

   Retail spaces in busy areas benefit from natural foot traffic, which can attract tenants willing to pay premium rents.

   
   

3. Flexible Space Usage

   Retail spaces can often be adapted for different types of businesses, making it easier to find new tenants if one leaves.

   
   

4. Community Hubs

   Retail centers often become social gathering spots, which can increase demand and stability.

   
   

However, retail comes with its own set of challenges:

• Economic Sensitivity

Retail is more vulnerable to economic downturns. When people tighten their belts, discretionary spending drops, and some retailers may struggle.

• E-commerce Competition

Online shopping continues to eat into brick-and-mortar sales, forcing some retailers to close or downsize.

• Shorter Lease Terms

Retail tenants often prefer shorter leases, which can mean more frequent tenant turnover and vacancy risk.

A Virtual retail shopping center somewhere in Utah County

Breaking It Down: Which Product Should You Build?

If I were new to the industry, here’s how I’d think about it:

1. Consider Your Risk Tolerance

• Medical office space is like a slow and steady tortoise. It’s generally safer, with stable tenants and recession resistance, but requires more upfront investment and specialized knowledge.

• Retail is more like a hare - potentially faster returns but with more ups and downs due to market volatility and changing consumer habits.

  
  

2. Evaluate Your Budget and Timeline

• Medical office buildings often need more capital and longer timelines due to build-out complexity.

• Retail can be quicker to build and lease, especially if you’re targeting smaller tenants or flexible spaces.

  
  

3. Think About Location and Market Demand

• If you’re near a hospital or medical hub, medical office space might be a no-brainer.

• If you’re in a high-traffic commercial area or near residential neighborhoods, retail could thrive.

  
  

4. Factor in Your Long-Term Goals

• Are you looking for steady, predictable income? Medical office space might be your friend.

• Want to capitalize on community growth and retail trends? Retail could offer more upside.

  
  

5. Don’t Forget About Property Management

• Medical tenants often require more hands-on management due to specialized needs.

• Retail tenants might need more marketing support and community engagement to keep foot traffic high.

  
  

A Personal Take: What I’d Do in Utah County

Given the current market conditions in Utah County, with low vacancy rates in both sectors, I’d lean slightly toward medical office space if I were new to the industry. Why? Because the healthcare sector’s stability and long-term growth potential provide a solid foundation for a first investment.

That said, retail isn’t out of the game. If you have a knack for community engagement and can spot emerging retail trends, retail spaces can be very rewarding. Plus, with the right location and tenant mix, retail can complement a diversified portfolio.

Remember, Blackstone Development and Construction LLC aims to be the go-to builder in Utah for commercial properties, Tenant Improvments, focusing on delivering high-quality, lasting results through a transparent and well-planned process, and expanding their reach in the commercial construction sector. Partnering with a builder who understands these nuances can make all the difference.

Next Steps: Making Your Investment Work for You

So, you’ve got the basics down. What now?

• Do your homework. Research local market trends, talk to brokers, and visit existing properties.

• Crunch the numbers. Calculate potential returns, factoring in build costs, lease rates, and vacancy risks.

• Partner wisely. Work with experienced builders and property managers who know Utah County inside and out.

• Stay flexible. Markets change, so be ready to adapt your strategy as needed.

  
  

Investing in commercial real estate is a journey, not a sprint. Whether you choose medical office space or retail, the key is to build something that meets market demand and stands the test of time.

Happy building!