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 1Q16 Medical Office Market Update

Source: REOC San Antonio

Source: REOC San Antonio

Conditions improved in the San Antonio medical office market in the first quarter.  Citywide occupancy within the city’s inventory of more than 7 million square feet of medical-only office lease space improved compared to the previous quarter and rents ticked up.  Demand for medical office space generated positive net absorption in the first three months of the year, reversing the negative absorption trend that troubled the market last year. 

The San Antonio Integrated Medical Plaza, located adjacent to the Cumberland Surgical Hospital on the campus previously known as the Victory Medical Center, will soon house a long-term acute care hospital (LTAC) (33,000 sf) along with a Dialysis Clinic (9,900 sf). Heart Endovascular & Rhythm of Texas, for example, recently leased 9,551 square feet at the Villages of Sonterra – a professional office complex in Far North San Antonio but not a medical-only office building.  Similarly, The Medical Team, LLC inked a lease for 9,177 square feet at Centre Plaza, again, a general office building.

With no new inventory added to the market yet in 2016, the citywide vacancy dipped to 20.3% compared to 20.6% last quarter.  Vacancy rates for Class A & B submarkets are nearly even at 19.9% and 19.8%, respectively; but, vacancy rates vary greatly by location.  The small but emerging Far West sector boasts a 12.2% vacancy rate – the lowest of all the sectors.  Despite the uneven vacancy, the upward rent trend has remained stable, although the impact of increasing operating expenses is largely responsible.  The average quoted rental rate for medical-only office stepped up $0.13 from last quarter to reach $24.68 per square foot on an annual full-service basis – which reflects an over-the-year increase of 2.8%.

San Antonio’s stable economy and growing healthcare industry continue to attract investment activity but the dearth of properties listed for sale creates a challenge for investors.  Still, nearly 131,000 square feet of medical office lease space is currently under construction and expected to come online in 2016.  However, as the election draws closer, the future of the Affordable Care Act and how it may be altered is likely to be a topic of discussion that may add some uncertainty for investors and tenants alike.

Click to download REOC San Antonio’s complete 1Q 2016 Medical Office Market Report



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