Ensemble Investments LLC/Universal Health Realty Income Trust has acquired the Papago Medical Park, totaling nearly 80,000 sf, from Denali National Trust Inc. of Scottsdale. The property is positioned at 1331 N. 7th St. and was practically 100% occupied at sale time, which reaped $82.50 per sf.
The medical office market has remained relatively stable despite a Valleywide office vacancy that's spiked to nearly 18% due to the economy's slowdown. "Medical office space has definitely maintained rental rates and occupancy levels within the marketplace," Glenn Smigiel, the CB Richard Ellis Phoenix broker who negotiated the sale, tells GlobeSt.com. "It is not as directly tied to the US economy. Doctors don't just don't move very much. If their practices are growing, they need space. It is more of a steady growth."
The Valley's continued growth of at least 50,000 new residents annually has most doctors' practices flourishing, Smigiel says, which somewhat insulates them from any downturn in the economy. "People still need medical care," he says.
While more and more medical office space is being developed in areas away from hospitals, those that are on campuses still command high rents, according to Smigiel. Those medical office buildings near Good Samaritan Regional Medical Center, one of the largest hospitals in the region, are well into the 90%-leased range. The Good Samaritan Regional Medical Center is located at the southeast corner of 10th Street and McDowell Road, about two blocks north of the Papago Freeway.
Rent for medical office space can range as low as $18 per sf on a gross annual basis, but the more typical lease amounts fall between $22 per sf and $25 per sf. The lease rates are comparable to those being charged for standard class A office space.
Smigiel says he suspects the vacancy in the medical office buildings on the campus of the Good Samaritan Regional Medical Center and that near St. Joseph's Hospital, situated at the northwest corner of Thomas Road and 5th Avenue, will drop in the coming years when the new Phoenix Children's Hospital opens. That facility is positioned at the intersection of Thomas Road and Squaw Peak Parkway, about 1 1/2 miles from the other two hospitals.
A CB Richard Ellis team of five brokers from the Phoenix office represented the seller. The team consisted of Smigiel, Bob Young, Steven Brabant, Julie Johnson and Rick Abraham. The buyer did not have broker representation.
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