REOC San Antonio
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Kim Gatley
enior Vice President & Director of Research at REOC San Antonio

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REOC San Antonio releases 3Q 2013 medical office market update

According to the survey of nearly 6.3 million square feet of medical-only office space, new leases and expansions inked in the first half of the year generated more than 200,000 square feet of positive net absorption through the end of June but gains in the medical office market slowed to only 4,398 square feet for the three-month period of July, August and September.

“Market-wide, tenant demand for space remains strong but medical-only office buildings continue to see some of that demand diverted to other real estate alternatives,” says real estate veteran Carl Bohn, Vice President, REOC San Antonio.  “The industry shift towards patient-centered, convenience-oriented care has led some healthcare providers to pursue build-to-suit facilities while other medical-related activity has found opportunities in general office buildings, smaller office condos or stand-alone buildings and retail centers,” Bohn says.

Despite the dispersed activity, local medical office properties have accumulated a year-to-date total net gain of 205,797 square feet of positive absorption.  In response, the citywide vacancy rate continued its downward trend landing at 16.7% at the close of September compared to 18.2% recorded for the same period last year but the nominal amount of gain in the third quarter kept vacancy nearly unchanged compared to 16.8% posted last quarter.

Even while the owners of medical office buildings strive to remain competitive with the broad spectrum of alternatives that tenants have to choose from, lease rates continued to move forward.  The citywide average asking rental rate for medical-only office space ticked up $0.03 over the quarter to reach $23.80 per square foot per year which is up $0.31 compared to the same quarter a year ago for a modest annual increase of 1.3%.

Vacancy and rental rates vary by location and class.  The emerging Far West sector, which currently offers less than 200,000 square feet of tracked medical-only office space, ended the third quarter with a vacancy rate of 4.1% – the tightest in the city.  New construction will deliver additional inventory to the Far West sector early next year with the completion of the 70,000-square-foot Westover Hills Medical Plaza III currently under construction on the CHRISTUS Santa Rosa Westover Hills Hospital campus along with the 45,000-square-foot Westover Hills Medical at Town Center building located at Town Center Drive and Rogers Crossing.

“San Antonio’s robust healthcare industry continues to drive activity and generate demand for space – whether or not it gets reflected in the absorption figures,” concludes Bohn.

Click to download REOC San Antonio’s 3Q 2013 Medical Office Market report.

Click to read related article: San Antonio’s med-office sector hits 3rd quarter speed bump (San Antonio Business Journal, 12-20-13)


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