MDNews - San Antonio

the 155,000-square-foot, 54-bed hospital or the 84,000-square-foot adjacent medical o‡ce building. FACING CHALLENGES In genera l, strong gains in hea lthcare spending and healthcare-related employ- ment continue to support industry growth, but not a ll medica l grow th translates d i rec t ly i nt o ga i n s for t he med ica l o‡ce market. "Medical buildings face the challeng- ing headwind of competing with other commercial properties as tenants scout all alternatives," Gatley says. Hea r t Endova scu la r & R hy thm of Texas, for example, recently leased 9,551 square feet at the Villages of Sonterra — a professional o‡ce complex in Far North San Antonio, but not a medical-only o‡ce building. Similarly, The Medical Team LLC inked a lease for 9,177 square feet at Centre Plaza, again, a general o‡ce building. "Even as the healthcare business model continues to undergo significant change, fundamental factors, such as population growth and an aging population, continue to drive demand for medical o‡ce space," says Carl Bohn, Vice President, REOC San Antonio. New leases a nd expa nsions within medical-only o‡ce buildings generated 18,105 square feet of positive net absorp- tion in the first three months of the year. With no new inventory added to the market yet in 2016, the citywide vacancy dipped to 20.3 percent, compared to 20.6 percent last quarter. However, new construction delivered in the second half of last year pushed the vacancy rate up compared to 19.5±percent recorded a year ago. Vacancy rates for Class A and B submarkets are nearly even at 19.9 percent and 19.8 per- cent, respectively, but vacancy rates vary greatly by location. The small but emerg- ing Far West sector boasts a 12.2 percent vacancy rate — the lowest of all the sectors. By comparison, the Northwest sector, home to the South Texas Medical Center and the largest concentration of medical o‡ce space in the city, reported a vacancy rate of 24.1 percent, which remained stable compared to last quarter but ticked up slightly compared to last year at this time. POSITIVE OUTLOOK Despite the uneven vacancy, the upward rent trend has remained stable, although t he i mpa c t of i ncrea si n g operat i n g expenses is largely responsible. The aver- age quoted rental rate for medical-only o‡ce 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±percent. (To adjust for buildings which quote rents on a triple net basis, operating expense figures have been added into the equation to arrive at an average equivalent full-service rate.) Unlike vacancy, the di…erence between renta l rates quoted for Class A and B medical o‡ce space is significant with Class A properties averaging $28.42 while Class B properties stand at $23.05. "San Antonio's stable economy and growing healthcare industry continue to attract investment activity," Bohn says, "but the dearth of properties listed for sale creates a challenge for investors." The largest transaction in the f irst quarter was the interesting purchase of 400 Concord Pla za Drive (49, 270 squa re feet) by cor porat e nei g hbor Whataburger; no announcements have been made regarding its plans for the facilit y, which currently houses The Orthopaedic Institute. Look ing a head, " t here is a lack of developer participation in speculative development, especia lly for sma ller, stand-alone buildings," observes Bohn, adding that "inventory is virtually non- existent." Still, nearly 131,000 square feet of medical o‡ce lease space is cur- rently under construction and expected to come online in 2016. Most of the space slated for completion this year is already substantially pre-leased, which will spare the market from any significant spike in vacancy through the course of the year. However, as the election draws closer, the future of the A…ordable 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. Kim Gatley is Senior Vice President and Director of Research at R EOC San Antonio, a locally ba sed , f ull-ser vice commercial real estate company. Contact Gatley at 210 - 524 - 4000 or kgatley@ reocsanantonio.com . Quarterly surveys conducted by R EOC San Antonio: Statistics are based on the quarterly survey of all multi-tenant medical office buildings 20,000 square feet and larger, excluding owner-occupied , single tenant and clinical facilities. P l e a s e v i s i t re o c s a n a n t o n i o .c o m fo r m o re i nfo r m a t i o n a b o u t R E O C San Antonio. ■ SPECIAL SECTION: MEDICAL REAL ESTATE 1 7 M D N E W S .C O M /// M D N E W S S A N A N T O N I O ■ 2 016

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