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Lower Reimbursements, Higher Construction Costs Preventing Some Doctors From Moving

CADDIS Healthcare Real Estate Southeast Region Director Christine Gorham

Not every Atlanta physician is partaking in Atlanta's current medical office building renaissance. With reimbursements shrinking for physician groups, on top of a steep rise in construction costs, many medical groups are staying in older medical office spaces, CADDIS Health Care Real Estate Southeast Region Director Christine Gorham said.

“By and large, doctors are handcuffed by costs right now,” Gorham said. “They'd love to make a move. They'd love to be in more prominent spaces. But they just can't afford it.”

With a lack of new development, vacancies in Atlanta's medical office market have dropped below 10% for the first time in more than a decade, according to a recent Transwestern report. That, in turn, has given rents a healthy rise, with some submarkets costing tenants nearly $30/SF.

Only large healthcare organizations such as Northside Hospital or Piedmont are able to afford expansion in the market, Gorham said during Bisnow's Exploring North Fulton event last week. Healthcare systems are trying to grow by luring more patients into the system, which is pushing them to expand closer to residential communities around the metro area.

“The name of the game, especially in Atlanta, is getting your name out," she said. "Capture the population and get them through your system."

Greenstone Properties Chris Scott Rubenstein Partners Taylor Smith North Fulton Community Improvement District Michael Liethead
Greenstone Properties partner Chris Scott, Rubenstein Partners Regional Director Taylor Smith and North Fulton CID Property Analyst Michael Leithead

Medical office was just one of the real estate issues touched upon during the North Fulton event.

As lawmakers in Georgia's Gold Dome deliberate on legislation that could create a new regional transit organization, Greenstone Properties partner Chris Scott warned that the lack of transit in North Fulton could be the area's Achilles' heel.

“I think transit is the biggest thing that's going to hold back North Fulton from growth,” Scott said.

Samir Abdullahi
Economic Development Administrator
Select Fulton
Select Fulton Economic Development Administrator Samir Abdullahi

Home values in the area outstrip the collective values in other major Metro Atlanta counties, Select Fulton Economic Development Administrator Samir Abdullahi said during a keynote presentation, outpacing Gwinnett and Cobb counties.

Fuqua Development Principal Jeff Fuqua said getting apartments approved by suburban municipalities is next to impossible. But once developers add a mix of uses like retail, office and entertainment, suburban governments are more likely to approve projects with multifamily.

Lower Reimbursements, Higher Construction Costs Preventing Some Doctors From Moving
Fuqua Development principal Jeff Fuqua, Mill Creek Residential Senior Managing Partner Chad DuBeau, Carter Executive Vice President Jerome Hagley and Pope & Land Enterprises Managing Director Kerry Armstrong

“We've been successful in all cases if we wrap [apartments] around mixed-use,” Fuqua said.

Mixed-use developments also need to focus on curbs because of the rise of shared transportation services like Uber or Lyft. Some panelists said that there needs to be plenty of curb space to accommodate people who use those services. Carter Executive Vice President Jerome Hagley said the challenge is less about dropping people off but finding curb space to pick them up.

“We've incorporated in our development the drop-off and pickup for Uber. Hotels are starting to do it now. People fought it, but … it's not going anywhere,” Hagley said. “It's not about the drop-off, it's about the pickup.”

CORRECTION, FEB. 28, 1 P.M. ET: The value of all property in Fulton County is $126B, according to Select Fulton Economic Development Administrator Samir Abdullahi, not just homes, as a previous version of this story stated. This story has been updated.