San Antonio Medical Office Market’s Continued Recovery

December 3, 2012

SAN ANTONIO (NAI REOC) – The city’s medical office market showed signs of continued improvement in the third quarter, according to NAI REOC’s survey of more than 6.1 million sf of medical-only office properties.

“Local medical office properties demonstrated continued recovery from the downward shift that began in 2008,” said Kim Gatley, Senior Vice President and Director of Research for the local commercial real estate company. On both a quarterly and over-the-year basis, vacancy decreased and average rental rates increased.

Citywide vacancy tightened to 18.2 percent, down from 19 percent last quarter and 19.6 percent recorded in the same quarter a year ago.

The average quoted rental rate for medical space throughout the city climbed to $23.49 per sf per year on a full-service basis, up $0.12 from last quarter and $0.49 compared with last year at this time for a moderate annual growth rate of 2.1 percent.

Sublease space has not had a significant impact on the local medical market vacancy rates, the report showed. Of the approximate 1.1 million sf of vacant space, 24,400 is sublease. Including sublease space, the overall vacancy rate stands at 18.6 percent, an improvement over the 20.8 percent recorded last year at this time.

New leases and expansions signed in the third quarter generated 50,217 sf of positive net absorption, raising the year-to-date total to 136,328 sf, more than double the amount recorded through this point last year.

With the coming implementation of the Affordable Health Care Act, demand for medical office space is expected to increase, but health care providers are looking beyond the traditional medical office building.

“Demand for health care-related space is spreading into retail shopping centers and other nontraditional medical office space as medical practitioners and other medical-related tenants position their services in convenient locations around town,” said NAI REOC Vice President Carl Bohn.