San Diego Medical Office Report | Q4 2015

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By Paul BraunChris Ross, and Kelly Moriarty
JLL San Diego Healthcare Practice Group

Q4_2015_snapshot

Medical office leasing and sale activity remains steady throughout most areas of the county, the Southwest region and the U.S. With improved employment rates and other economic conditions comes a generally better insured population, a higher percentage of patients seeking preventative medicine and elective procedures and other trends that have resulted in improved revenue for many health practitioners. As a result, more space is being absorbed. That is not to say providers do not have plenty of challenges. In fact, many physicians’ net incomes are down and have decided to retire or join a larger group to get away from the grind of practice ownership. But the fundamentals that affect real estate demand are strong: physicians and hospitals continue to consolidate or form strategic partnerships, and as a whole they are expanding programs, services and geographic reach.

Vacancy continues its gradual decline and now sits at 7.8%, down fairly significantly from 9.7% a year ago, with only two submarkets (Oceanside/Vista and Escondido/San Marcos) over 10%. Only ten medical buildings in the county contain over 20,000 square feet of total available space.

Forty-nine (49) of the 398 buildings in the county that are designated as “medical office” by JLL Healthcare Practice Group are considered Class A.  Vacancy among these buildings is 6.6% – well below the five-year average of 11.1%. The average time on the market for this vacancy is currently 12.1 months, down from the five-year average of 18.3 months.

Class B medical buildings are continuing their downward trend in vacancy (currently 7.9%) and gradual incline in asking rents ($2.56/SF full service). Class C vacancy is currently above 5- and 10-year averages but remains in the single digits at 9.1%. Class C average asking rent is currently $1.91/SF – a hair above the 5-year average of $1.86.

Health care providers are doing a good job educating consumers about the importance of regular checkups, wellness, healthy diets, exercise, new medical technology and other advancements in medicine, and other important information pertaining to health and care. San Diego in particular has some of the nation’s best physicians and hospitals, and our county will continue to benefit from that – as will the real estate in which these providers practice. New construction has remained remarkably limited, but this is bound to change as demand persists and rental rates reach unchartered territory.

 

To request a complete version of the Q4 2015 San Diego County Medical Office Report, please contact Paul BraunChris Ross or Kelly Moriarty.

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