What Could Derail Climbing MOB Prices?

SAN DIEGO—Very little could derail climbing medical-office building prices, other than the threat of rising interest rates, Jones Lang LaSalle‘s VP Chris Ross and managing director Paul Braun tell GlobeSt.com exclusively. The firm’s San Diego healthcare practice group recently released its Q4 2014 medical-office report, which revealed:

• Medical-office-building vacancy in San Diego has fallen below 10% to 9.7%.
• Rents are going up; the high end of rental rates is now $4 triple net, and the average asking rate for medical-office building space is up 2.7% from 12 months ago to $2.54 per square foot.
• Medical practices are forging new partnerships and strategic relationships, consolidating into larger and more-efficient space. This often means moving out of B- and C space and into A and B+ space. Class-A vacancy has been cut in half over the last two years, down to 6.6% today.
• Five of the nine submarkets in San Diego have single-digit medical-office building vacancy; the others will follow within the next 12 months.
• The North County coastal submarket currently supports the highest direct asking rental rates for medical-office-building space.
• Pent-up and increasing demand from buyers will create healthy MOB sales activity in 2015.
• Two new hospitals are in the pipeline for the San Diego market: Jacobs Medical Center, a new 10-story, $939-million hospital on UCSD‘s La Jolla campus, scheduled to open July 2016; and a new Kaiser Permanente $900-million, 450-bed hospital campus on Ruffin Rd. in Kearny Mesa, scheduled to open in 2017.

After the report’s release, we spoke with Ross and Braun about San Diego’s hot medical-office market, the investment sector for this market and what could potential hamper it.

GlobeSt.com: What do you feel is most responsible for the medical-office vacancy dipping below 10% in San Diego?