Appraisal Articles 2019 Free Appraisal Articles for Appraisers and the Public
Appraisers discover that, even if they are not in a market like Las Vegas / Henderson Nevada where most of the buildings are relatively new, there is a great deal of consistency in values for office and medical office / healthcare buildings with similar uses.
It’s counter intuitive to think that small single-tenant or multi-tenant buildings have similar values per square foot as larger-scale buildings, but it’s often true. As an appraiser looking at the value of smaller buildings, like 5,000 square feet (SF), and then looking at buildings over 100,000 SF I expect to find large differences but it’s often not the case.
Yes, office and medical office buildings here do have similar construction quality with most being wood frame and concrete block which makes them similar and most were even constructed after 1990 which makes them even more similar. But there are those that are older, here that means 1970’s, that have had remodeling and those sales amazingly fall into the same range as the larger newer group.
So what factors really make a difference for office and medical office buildings? It’s usually location, of course, parking (those that fall outside of the typical range suffer a loss) and the quality of the interior finish. The quality of the tenants makes a difference, when it comes time to sell the property if it’s not for a single user it’s all about income. So credit-worthy tenants with long-term leases are going to make an important difference and increase the demand for a building.
Vacancy rates in Las Vegas and Henderson have remained relatively high for an extended period of time and the market saw an upward movement to near 19.0% in late 2014 and we are still near 17.0% in the later part of 2016. For appraisers this relatively high vacancy rate, like the upwardly moving cap rates, puts downward pressure on office and medical office values.
The money that is being spent on healthcare appears to be like a steeply climbing plane, the trends are up, up and away, its ever-increasing through 2016. More and more money being spent in the industry should reasonably relate to ever increasing demand in the office / medical office buildings, but apparently that relationship is not that strong.
If I drew the graph it would show the climbing health care spending but the sales price per square foot for office and medical office building would be flat or slowly decreasing in Nevada. Since real estate markets can differ dramatically from one place to another this may not be what you are seeing in your market, but it’s exactly what’s going on here.
I moved to the desert to escape the harsh Winter in Michigan and it has been worth the effort for the most part. I anticipate that the office and medical office markets will improve here over time. There are still many baby-boomers who will likely move. The state has been reported to be one of the net population gain states.
So for now Las Vegas and Henderson Nevada, from an appraiser’s standpoint, appear to be places with depressed office and medical office building prices, due again to our high vacancy rates, but places that should change and for buyers (putting on my brokerage hat) this may be an opportunity to buy before the real estate market becomes aligned with the healthcare spending and population increase curves.
For more appraisal information contact Glenn J. Rigdon MA, MRICS, ASA is a Las Vegas / Henderson Nevada based appraiser who can be contacted via email or via his business website known as Appraiser Las Vegas (http://www.appraiserlasvegas.com), or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/
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