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

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‘Sluggish’ local medical office market result of evolving healthcare delivery

quoi de neuf docteurSan Antonio’s real estate market has delivered a steady stream of good news so far this year, so it’s somewhat ironic that the one sector not firing on all cylinders is medical office space.

Prolonging the flat close to 2014, this year’s first quarter period did little to give the medical office market a boost of activity. According to REOC San Antonio’s latest market report,
which surveyed nearly 6.9 million square feet of medical-only office lease space, the segment experienced nearly 20,550 square feet of negative net absorption. Vacancy was pushed up to 19.5 percent this quarter compared to 18.5 percent for the final period of 2014. And given the trends REOC attributes to these less-than-stellar results, the market won’t have a likely chance for a turnaround any time soon.

That doesn’t mean, however, that the city is losing its medical industry appeal.

Carl Bohn, vice president of REOC’s local office, said that the $24 billion health care and bioscience industry will continue to fuel demand for space throughout San Antonio’s commercial real estate market. The kicker for 2015, however, will be that not all medical-related tenants are choosing to lease in a medical-only building.

“Medical tenants have been increasingly willing to locate their offices in retail and other non-traditional product types; others have chosen to own their own free-standing buildings,” he said, adding that the business practice of medicine itself will continue to impact the specialized office market.

This, as well as the shift from the traditional, independent health care provider toward larger health care systems will result in less small suite leasing activity. Throw in the fact that new supply continues to be added to the market and you have a surefire boost to vacancy rates.

And here is some good news: Those higher vacancy rates haven’t translated to any pricing dips. REOC found that the cost of renting medical office space climbed $0.05 from the last quarter to reach the citywide average of $24.01 per square foot. The far North Central submarket and the far west submarket lead the city in terms of quoted rent rates, with the former commanding nearly $29 per square foot and the latter surpassing $27.

Click to read entire article: ‘Sluggish’ local medical office market result of evolving healthcare delivery (San Antonio Business Journal, 06-04-15)

 

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