Rising Interest Rates and Dental Real Estate

If you’ve been researching dental real estate for any period of time, you know the market has boomed in recent years. However, as interest rates continue to rise, there is a buzz in the air about the market slowing down. Clients that were set on searching for a dental clinic for lease this year are now wondering, Should I open? Is now the right time?

While it's too early to say for sure, we believe that the dental real estate market is shifting, rather than cooling.  

As dental real estate experts, we help hundreds of doctors and dentists sign leases and purchases each year.  If you’re curious to know

  • what we are hearing about the dental real estate market and
  • what we are seeing in the market for clients,

watch this video, or read on below.


“We could see a slowdown in development and construction of new products.  This means there are not going to be huge vacancies in the market,” said Thomas Allen.  Allen is a dental real estate expert and CEO of Practice Real Estate Group.
“There will most likely be a point in time where development will still be going on but slowing down.  Other non-healthcare users will quit leasing space. That's going to be the window for people to take advantage.”

While downturns in the market can be worrisome, they can also present dental real estate opportunities.  

“I think this could be a little downturn in the market that you can take advantage of.  People are going to be needing some cash to support other things. And they might be willing to make some deals,” Allen said. 

Of course, no one can predict the future. It's important to consult with a financial advisor before making any decisions. If you've already done that and are looking for a dental real estate opportunity in Austin or Central Texas, here are three tips we're offering our clients:

  1. First, consider the rising rates in context of your monthly cash flow projections.

     

    “Let's just say a startup doctor is taking a loan out for $500,000 - $600,000,” Allen explained as an example. “Previously, I believe they were paying around 4% on their money, maybe a little more. Now let's say it goes up 2% to 6%. Two percent on $600,000 is $12,000. That is literally $1,000 a month. If you're thinking about opening a practice, interest rate change shouldn't be driving your decision, in my opinion, because $1,000 a month is less than any employee costs.” 

  2. Next, consider the rising rates in context of recent history.

    “The biggest downturn since the Great Depression is when I got into this business, and it was a frenzy how many doctors were starting up. Their practices were doing great,” Allen reflected. “One difference then was the real estate market was way overbuilt. Right now the vacancies are so tight, there's gonna be opportunities, but I don't think it's gonna be quite as easy. Leasing space for doctors in from 2008 - 2010 when the market was down, was like shooting fish in a barrel.”

     

  3.  Last, don't forget to be thoughtful regardless of when you decide to open. 

Opening your own practice can be a great way to take control of your career.  Additionally, you'll have autonomy and could make a great income. However, you need to have a good plan in place.  

“You really should sit down and create a real business plan,” Allen advised. “It's not just how much revenue you’re gonna make. It's what kind of practice are you going to be? How many people are you going to hire, and what are their hours going to be? How are you going to market? What is your branding? You’re not just opening a clinic.”

If you have any other questions about starting a business, reach out to us. We are dental real estate experts and we would be happy to help you get started.

“We've never had a client fail,” Allen said. “That's still true to this day. I’ve been in this business for 12 years, and I have never seen a client fail.”

Candice DePrang Boehm

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