Med office tenants never really leave, they just stop paying what you underwrote
That line is worth taking seriously, because what never really leave looks like up close is rarely what the phrase implies. Picture two small clinic buildings in the southeast, both under 8,000 sf. In one, a dermatology group is 14 months past lease expiration and still in the space paying month to month, and every renewal conversation stalls because both sides know the landlord cannot replace them without a six-figure TI commitment. In the other, an urgent care that opened in 2019 on a five-year term is negotiating a rent reduction in exchange for two more years. Both tenants stay. The economics that were underwritten are gone. Stickiness is a genuine feature of medical office, since the buildout and the patient base make moving expensive, and the same switching cost that holds a tenant in place hands them leverage at every renewal. Underwriting the stickiness without funding the TI reserve that sits behind it is where a feature turns into a trap. How is the room reserving for that?
