The San Diego medical office market is steadily chugging along. Many providers are seeking opportunities to upgrade their space, building or location since, in most areas, rents and prices are still reasonable and favorable tenant improvement allowances and concessions are still available.
Vacancy continues its gradual decline and now sits at 8.7%, down from 10.3% from a year ago, with only two submarkets (Oceanside/Vista and Escondido/San Marcos) over 10%. Class A medical space is extremely tight, down to 6.4% vacancy, which is leading to more tenant activity among Class B properties. The Class B buildings having the most success in landing those tenants are those that are enhancing their exterior and common areas to bridge the gap in quality between B and A, resulting in good value for providers with new practices or for whom it does not make economic sense to pay up for Class A space. By next year, Class B properties will likely show a stronger push in rents like we have seen from Class A buildings over the past 24-36 months.
With the outlook for healthcare providers and dentists more stable today than it was during the recession and the Medicare and Obamacare turmoil, many tenants who are unwilling to move are now committing to longer renewal terms in order to achieve attractive allowances and other favorable terms that justify remodeling or refurbishing their space.
With the exception of a small handful of build-to-suits and expansions, there has been a limited amount of transaction and construction activity over 30,000 square feet in 2015. Six months is a pretty small sample size, but it does seem that most of the health systems in our region are currently focusing on very specific geographical areas, services or facilities as opposed to aggressively expanding into new territory.
Post on LinkedIn: As much as the ACA and threats of Medicare reimbursement cuts have been a cause for concern among health practitioners in recent years, it is seemingly resulting in a much more entrepreneurial spirit among many business-minded providers as they reevaluate if they are appropriately positioned for this new era of healthcare, according to JLL San Diego’s Healthcare Practice Group. Share on LinkedIn
Tweet this: Most improved leasing & sale activity: tenants in the 3-10K SF range, says @JLL_SanDiego’s #MOB practice group #CRE http://ctt.ec/N9FuO