Single-Specialty Providers Drive Record Medical Office Activity in San Diego
This year, the medical office market has posted three consecutive quarters of rising occupancy rates and total absorption of more than 107,000 square feet.
“The health systems and their respective physician networks have been the biggest driver, as usual, but a more recent trend we are seeing from a demand perspective is significant activity from new single-specialty healthcare providers entering the San Diego market,” Chris Ross, an EVP at JLL, tells GlobeSt.com. “Urgent care operators are the most active, in part due to patients demanding more convenient locations for primary services. Urgent cares can get up and running relatively easily and, with the right location, care, marketing and visibility, quickly become profitable.”
In addition to activity from these groups, Ross says that new entry of single-specialty healthcare groups from outside of the market has also fueled activity. “Other healthcare groups who are actively entering our market from out of town or out of state include concierge medicine, dermatology, fertility, dialysis, optometry, ophthalmology, physical rehab, behavioral health, med spas and even walk-in specialty centers such as orthopedics,” he says. “There is also a company or two testing the market with the opening of medical office time shares, which will be interesting to follow.”
Of the submarkets in San Diego, Escondido and Oceanside are the only markets with a double-digit vacancy rate and to see a declining occupancy rate in the third quarter. The Escondido market gave back 9,269 square feet, while the Oceanside market lost 4,509 square feet. “They may be the only submarkets in San Diego with double digit vacancy, but that is only high relative to how incredibly healthy the rest of the San Diego medical office market is,” says Ross. “By most other standards, anything close to 10% would be considered low vacancy. The life sciences market is a perfect example. It is thriving here in San Diego and its current availability rate is just below 10%. It is true that the Oceanside and Escondido have been relatively quiet from a leasing activity standpoint, but there is a limited amount of good quality vacancy in the area, and we are going to see steady growth along the 78 corridor in the years ahead, particularly from Palomar, Tri-City, Scripps, Graybill, the community clinics and perhaps UCSD.”
Ross expects the momentum to continue through 2019, with similar activity. “2019 will be more of the same,” he says. “The San Diego market is very competitive among health systems, large medical groups and other healthcare providers, so they will continue to jockey for space in the market – particularly in Class A and B MOBs and high-visibility retail locations.”