Where this Wichita real estate sector has been and where it could go with a biomedical campus ahead
Article Source: bizjournals.com | Published: Aug 1, 2024 | By Josh Witt
From elevated interest rates and construction costs, to companies reevaluating — and sometimes scaling down — their footprints in the wake of the Covid-19 pandemic, Wichita’s office market has seen its share of headwinds in recent years.
But there’s a segment of that sector that has held up well, local real estate professionals say.
Medical.
“I would say it’s the bright light in the office market,” said Craig Simon, senior vice president at Landmark Commercial Real Estate.
According to California-based Marcus & Millichap Co., the medical office sector nationally has outperformed the overall office market since the pandemic. Its forecasted vacancy rate of 10% in 2024 is nearly half the rate Moody’s Analytics reported across all office properties in 2024’s first quarter.
In Wichita, a wide-range of businesses in medical-related fields — including dental, pediatric, optometry and mental health — have been opening new spaces from the northwest portion of the metro to the eastern suburbs.
Whitney Vliet Ward, commercial associate at J.P. Weigand & Sons, said she’s seen those in the health-care community becoming more engaged in real estate, which is aiding activity.
“A lot of the medical users are wanting to have their own building,” she said. “They may also work it as an investment opportunity, where they’ll buy, maybe 10,000 square feet, and then they’ll lease out the other half. So we’re seeing some definitely different, innovative projects.”
Simon has seen similar sector movement.
“One (reason), I think, is because they have the means, and two, I think there’s a need,” he said.
Between residential expansion on Wichita’s west and east sides driving demand, and plans for a $300-million Wichita Biomedical Campus moving forward in the city’s core, the sector looks to have room to run.
“The increase of users that will be in the health-care sector is really exciting,” Ward said.
Where medical office has grown — and its headwinds
In northwest Wichita, areas around Ridge Road and Maize Road between 29th Street and K-96 continue to see medical office growth. That includes this spring’s opening of Redbud Pediatrics’ 13,000 square-foot space in Maize.
Other hotspots are emerging on the city’s western edge.
At Maple and 135th Street, Auburn Family Dental and Implant & Perio Center of Kansas arrived in recent years, with ICTeeth poised to open on the northwest corner in November.
To the north, near 21st Street and 135th, The Office Park at Eberly Farm is adding Arthritis and Rheumatology Clinics of Kansas and Humlicek Family Dental.
Humlicek Family Dental owner Ashley Humlicek said the wave of dental specialists opening west-side locations is notable — as is the burgeoning medical office scene at Eberly.
“We’re going to grow each other’s businesses organically because there’s so much more foot traffic here,” said Humlicek, highlighting Heartland Dermatology and Skin Cancer Center’s presence in the park that’s a mile east of Ascension Via Christi St. Teresa hospital.
Meanwhile, east Wichita is still a prime spot for medical office, according to real estate professionals.
Since 2023, activity has included new locations for Kansas Plastic Surgery on North Greenwich Road, Smiles Orthodontics at 127th and Central Avenue, Equipoise Healthcare near Rock Road and K-96, and Mid-Kansas Wound and Limb Salvage at the Waterfront.
“I think there’s obviously been, over the last 10 years, on the east side of town, this … medical corridor, which is Webb Road moving up from probably 13th Street all the way up to 29th Street,” Simon said. “There’s everything from medical specialty groups to dental that moved up along that corridor, it seems like, and then branching off from that.”
A spring NAI Martens report found that northeast Wichita had a 6.4% medical office vacancy rate.
More movement along that Webb Road corridor is happening at 9758 E. 21st, where Pat Do, founder of Mid-America Orthopedics, has purchased the former Opti-Life building and is reshaping the space into a Class A medical and office property.
In Andover, construction is moving on an emergency room location for Wesley Healthcare — which also continues to grow its main Wichita campus footprint near Central and Hillside — and Andover Family Optometry’s new offices at The Heritage.
It’s not all easy for the medical sector, though.
“I think one challenge of medical space is the construction costs,” said NAI Martens president Grant Glasgow, adding he’s not seen any big moves up or down in medical office of late. “Whether it’s building out a shell space to lease or just building — it’s very expensive. And medical has always been more expensive from a construction standpoint.”
Along with higher interest rates that all of commercial real estate has faced, Ward said there is a specific element of medical construction that can be costly and is causing some to adjust plans.
“A lot of the medical office spaces want to have plumbing in each of the exam rooms,” she said. “But we are seeing some try to cut that down, and maybe there’s just a few of the exam rooms that have plumbing.”
Mental health therapy practices are one example within the sector that doesn’t have that issue. And it’s a part of the market that is also in high demand, Ward and Simon said.
“I’m probably getting more calls on that than any other type of office user in the last year,” Simon said.
Downtown biomedical corridor impact
Looking ahead, there’s no bigger driver of real estate and economic development enthusiasm than the downtown Wichita Biomedical Campus, with its 350,000 square-foot Phase 1 building at Broadway and William set to be ready for students in early 2027.
Ward said she’s already seeing high demand from potential medical office and other office users who want to be located near the campus.
“You’re already hearing that buzz and working with some people who look to be close in that corridor,” said Ward, also noting Kansas Health Science University’s presence across the street from the site.
Schellenberg Development Co. and Crain Development have already made a splash with plans to revitalize the nearby Petroleum Building, Kress Energy Center and McClellan Hotel Building — with potential medical and other office users showing initial interest in the spaces.
More big activity is afoot.
As the WBJ reported this week, Ascension Via Christi has sold some real estate just south of its St. Francis hospital — which Greater Wichita Partnership president and CEO Jeff Fluhr has called the “northern anchor” of a downtown biomedical corridor — to local developers.
Kevin Strecker, Wichita-based Ascension Kansas ministry market executive, said there is active engagement with the Greater Wichita Partnership, as well as Wichita State University and KU School of Medicine-Wichita, so that the development fits into the biomedical corridor plan.
“We’re trying to make sure that everybody’s working in concert, so that this is something special,” he said.
County records show a series of parcels have transferred ownership to Equisset LLC, a local real estate finance company that’s a subsidiary of Lange. Equisset declined to discuss specifics about what could be in the works, or share total costs, but confirmed that it was active in “several innovative development initiatives” in the St. Francis area and downtown Wichita.
Equisset framed development as being in the early stages.
“We invite property owners and stakeholders in the area to contact and collaborate with us,” Equisset general manager Stratton Lange said. “Additionally, we see this as an opportunity to contribute to the growth of the new biomed corridor by tying in our project with this significant development.”
While Strecker said that could mean more housing, retail and restaurants in the area just south of Murdock Avenue around St. Francis Avenue, medical office in proximity to Via Christi St. Francis also makes sense.
“I think that we’ll be able to attract industry to this corridor — people who are interested in doing research and development — because so much of that is done at St. Francis already,” he said.
Ward and Glasgow said they expect further medical office activity in the city’s core to be additive to the overall market, and not take away from east and west Wichita.
“It may be that they have their office in northwest Wichita, but they want to have a satellite close to the biomed campus,” Ward said.
Glasgow said it may take a while to know the campus’ full medical office impact — but enthusiasm is building.
“It’s going to bring a lot of people that are like-minded, who are pursuing medical services, into the downtown area,” he said. “I think naturally that will create opportunities in that core. It doesn’t happen overnight. It’s not like the medical school opens, and all of a sudden we have 20 new medical offices downtown.
“It’s going to develop and build over time.”
