By Paul Braun, Chris Ross, and Kelly Moriarty
JLL San Diego | Healthcare Practice Group
The San Diego healthcare community as a whole continued to show growth in the first half of the year. Several new medical buildings have been recently completed, are under construction now or are expected to break ground soon – albeit at a pace that is not expected to keep up with demand. Demand for medical office space is steady, with several submarkets throughout the county seeing new life in terms of leasing and sale activity.
Landlords continue to push rents at a moderate pace, a trend that is expected to continue until the market responds in one way or another. Negotiating leases are as challenging as ever at the moment, as tenants point to the impact growing rents have on their businesses while landlords redirect the conversation to market trends and comps. Both parties’ positions are justified, and it usually comes down to which party needs the deal more.
There are still good opportunities to be found, but the better spaces in well-located buildings are generally not sitting vacant for very long. The recovery for Class A medical office buildings in particular has been astounding. While the Class B vacancy rate is only half of what it was at its last peak of 15.0 percent in 2009, the Class A vacancy rate is only a fifth of its 2009 peak of 33.3 percent. Additionally, medical office buildings 50,000 square feet or larger are outperforming medical office buildings smaller than 50,000 square feet by greater than one percentage point in vacancy and over two percentage points in overall availability.
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