REOC San Antonio
Commercial Real Estate Since 1974   
Kim_Gatley
Kim Gatley
S
enior Vice President & Director of Research at REOC San Antonio

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REOC San Antonio releases 1Q Medical market stats

Source: REOC San Antonio

The full impact of the newly signed Healthcare reform legislation may not be crystal clear as of yet but as the Patient Protection and Affordable Care Act takes effect over the next five years, lawsuits notwithstanding, the demand for medical space is expected to increase significantly.  Locally-based commercial real estate firm REOC San Antonio weighs in on the subject and shares an update of the current status of the San Antonio medical office.  

With the new law, 32 million Americans who are currently uninsured will be added into the system.  Using the industry-standard figure of 1.9 square feet required per patient, there is the potential need for 64 million square feet of space necessary to accommodate the expanded patient base, nationally.  Texas stands to see noticeable changes as it reportedly has the highest number of uninsured in the country.  

Narrowing the focus to Bexar County, the addition an estimated 350,000 currently uninsured residents holds the potential for some 665,000 square feet of new medical office space needed locally to accommodate the system’s projected patient base expansion.  “This growth should affect not only hospitals and medical office product but will also spill over into other commercial sectors including traditional office space and retail,” says Carl Bohn, Vice President, REOC San Antonio.

Positioned and ready to accommodate new medical growth, Healthcare Realty Trust delivered a new five-story medical office building in the first quarter.  18707 Hardy Oak (113,786 sf) is located adjacent to the new Methodist Stone Oak Hospital in the Far North Central sector of the city. 

In the Far West sector, the successful lease-up of the Westover Hills Medical Plaza I building prompted Trammell Crow Health Care Services to kick off construction on the 60,500 square-foot Westover Hills II Medical Office Building located on the Christus Santa Rosa campus along Highway 151.

According to the survey of more than 5.8 million square feet of existing multi-tenant medical office space, gross leasing activity in the first quarter was led by pre-leasing activity in the new 18707 Hardy Oak building including an imaging center that filled 14,200 square feet.  In all, new leases and expansions generated 50,839 square feet of positive net absorption in the first three months of the year.

Despite the net gain, the addition of new supply outpaced demand which softened the citywide vacancy rate to 19.3% compared to 18.5% recorded last quarter and 17.9% recorded in the same quarter last year.  “It is important to note that although vacancy is up due to new construction and the consolidation of UT Medicine groups out of multi-tenant buildings and into the recently completed UT Medical Arts & Research Center (MARC), the medical industry overall and, more specifically, medical real estate including owner-occupied buildings and clinical facilities remains stable and strong,” says Kim Gatley, Senior Vice President and Director of Research for REOC San Antonio.  Moreover, Gatley points out that medical-related activity continues to spill over into traditional office properties.  First quarter examples include XL Health (39,012 sf) at 4350 Lockhill Selma, MEDCOM (32,750 sf) at Old BAMC Two – Fort Sam Houston, United Biologics (10,086 sf) at One International Centre and Scientific Image Center (7,149 sf) at Fountainhead Park. 

 After remaining flat for most of 2009, the citywide average quoted rental rate climbed forty-six cents from last quarter to reach $22.17 per square foot annually on a full-service basis – up sixty-nine cents compared to the same quarter last year for an annual growth rate of 3.2%.  Emerging sectors including the Far North Central and Far West offer new, high-end properties that command average rents in the range of $26 – $28 per square foot while average rents in the larger, mature markets like Downtown and the South Texas Medical Center area rest closer to $18 and $21, respectively.  

Medical properties are expected to continue a steady and stable performance in 2010 as the economic impact of the healthcare industry continues to grow.

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