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

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REOC Releases 3Q 2015 Medical Office Market Report

Source REOC San Antonio/Xceligent

Source REOC San Antonio/Xceligent

Topping medical market news in the third quarter, Cumberland Surgical Hospitals LLC, an affiliate of Post Acute Medical, filled the former Victory Hospital which declared bankruptcy this past June. Cumberland offers a vast array of services including neuro spine surgery, gastroenterology, and orthopedic surgery among others. “The filling of the 82,316 square foot hospital will help draw interest into the adjacent Victory Medical Office Building which is slated to come online next quarter,” says Carl Bohn, Vice President, REOC San Antonio, a locally-based commercial real estate company.

Meanwhile, nearby, FPMC San Antonio Realty Partners, LP filed Chapter 11 bankruptcy protection and the real estate, containing the Forest Park Medical Hospital and adjacent medical office building was posted for foreclosure only one year after the $90-million complex opened. “The challenges faced by out-of-network providers, such as the former Victory Healthcare facility and Forest Park Medical Hospital, make it extremely difficult to compete in the marketplace,” adds Bohn.

In the multi tenant, medical-only office market, conditions remained steady in the third quarter with a rooted 19.5% citywide vacancy rate, according to the survey of nearly 6.9 million square feet of medical office lease space conducted by the research department of REOC San Antonio.

Compared to the same quarter a year ago, vacancy is up 1.1 percentage points citywide. “The tenant base remained relatively stable and medical-only office buildings will remain a staple for many practices, but some medical-related businesses are venturing into non-traditional space, such as retail and general office locations, and still others are seeking to own their own facilities. Movement into such spaces reduces absorption numbers within the medical-only market; however, a comprehensive look indicates a strong and growing healthcare industry overall,” observes Bohn.

CHRISTUS Children’s Hospital of San Antonio, for example, recently opened a multi-specialty clinic for children at The Shops at La Cantera – a mixed-use regional retail center with complementary office space. This will be the Hospital’s first time venturing into retail space. “For those practices where non-traditional medical office space is a viable option, tenants are able to provide a more accessible and convenient location for their clients,” says Bohn.

“Vacancy rates may soften a little more next quarter due to the anticipated completion of new construction projects,” says Kimberly Gatley, Senior Vice President and Director of Research for REOC San Antonio. New buildings set to come online include Inwood Medical Office (20,887 sf), anchored by San Antonio Eye Specialists, Victory Medical Office Building (60,000 sf), and Rogers Road Medical Plaza (32,390 sf) – 65% pre-leased to various medical practices. Pre leasing achieved in these approaching additions will help boost absorption figures at the end of the year but will likely cause the citywide vacancy rate to tick upward slightly.

At the close of the third quarter, the citywide average quoted rental rate jumped to $24.49 per square foot per year on a full service basis, a $0.70 increase from the same time a year ago. “On average, the base rental rate for medical office space has remained relatively stable over the past two years or so but increased operating expenses, including real estate property taxes, continues to push the overall cost of renting space,” explains Gatley. The Far West lead the quarter in terms of the average cost of renting medical space at $29.89 a square foot per year followed closely by the Far North Central at $29.41. “Both areas possess strong medical hubs as well as the capacity to grow, catering to the expanding city suburbs,” adds Gatley.

New leases and expansions generated 7,325 sf of positive net absorption in the third quarter, slightly increasing the year-to-date total but not enough to bring the market into the positive. As evidence of the trend for medical-related tenants venturing outside of medical-only facilities, notable lease transactions in the third quarter included Wellmed occupying 40,996 square feet of newly completed office space at The Oaks at University Business Park Building 3 (General Office) and CSL Plasma into 13,738 square feet at McCreless Corner (Retail). Further, the purchase of Mossrock Centre by BRM Home Health PLLC solidifies the desire for some medical tenants to remain fixated on owner-occupied free standing buildings.

Click to download REOC San Antonio’s complete 3Q 2015 Medical Office Market Report


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