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Sale Transactions of the Quarter:Sharp Rees-Stealy exercised their option to purchase the 100,000-SF outpatient building at 16899 W. Bernardo Drive, their new Rancho Bernardo location to which they relocated in February. The sales price for the building was $42,662,500 ($426.63 PSF) and included a long-term ground lease.
In South County, Scripps Health purchased 333 H Street at Gateway Chula Vista. The 131,760-SF building sold for $27,825,000 ($211 PSF).
Lease Transaction of the Quarter: Cosmetic Laser Dermatology finalized a blend & extend at Genesee Plaza to increase its o� ices from 13,154 SF to 21,367 SF.
News, Facts & Updates
sdmedicalrealestate.com
San Diego medical o� ice occupancy increased in the first quarter of the year, posting an increase of 28,144 square feet of positive net absorption. The current overall San Diego County direct vacancy rate of 6.6 percent is 51 percent lower than in 2009, when it peaked at 13.6 percent.
Most all of the San Diego medical o� ice submarkets recorded minor movement in their total occupancy in the first quarter, with only two submarkets recording positive or negative movement greater than 10,000 square feet: the Oceanside/Vista submarket increased its occupancy by 32,728 square feet, dropping into single-digit vacancy (9.8%) for the first time since 2008. La Jolla/UTC/Sorrento posted 20,146 square feet of positive net absorption.
The weighted average asking rental rate for medical o� ice space continues
to climb, with a current year-over-year increase of 4.9 percent for the county overall. The submarket posting the largest year-over-year increase was La Jolla/UTC/Sorrento which increased 14.6 percent and had the highest average asking rental rate in the county at $3.93 per square foot, per month, fully serviced.
Tip of the Quarter: With construction costs having gone up significantly over the past 12-18 months, reducing tenants’ out-of-pocket costs by o� ering increased TI allowances can be a good way to help deals come togehter. In most cases the increased allowances come with higher rental rates and/or less rent abatement; that being said, allowances in general have risen over the past several years - one trend that is working in tenants’ favor in an environment of rising rents and tightening concessions.
Market conditions and trends
San Diego medical offi ce occupancy increased in the fi rst quarter of the year.
San Diego County
Medical O� iceSnapshot
6.6%Countywide direct vacancy
28,144Q1 net absorption (s.f.)
4.9%12-month rent growth
$2.81 FS Average Asking
Q12017
196,432Total under construction (s.f.)
(3 projects in total)
Kelly MoriartyAssociate 858.410.6359 [email protected]. No. 01963162
Paul BraunManaging Director858.410.6388 [email protected]. No. 00891709
Chris RossSenior Vice President858.410.6377 [email protected]. No. 01469025
JLL Healthcare Practice Group
San Diego County
Medical O� iceSnapshotQ12017
Supply 12,330,685 SF
Total availability 1,053,871 SF / 8.5%
Direct vacancy rate 6.6%
Under construction 148,312 SF
Quarterly leasing 50,685 SF
2017 net absorption 28,144 SF
12-mo. rent % change 4.9%
Average asking rent $2.81 FS
Key market indicators
Dem
and
Pric
ing
Supp
ly
Last Qtr 12-MonthChange Forecast
Net absorption vs. direct vacancy
San Diego Medical O�ice Overview | Q1 2017
$3.33
$3.14
$2.25
$2.50
$2.75
$3.00
$3.25
$3.50
$3.75
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 2017
Class A Direct Asking Rent Class B Direct Asking Rent
Class A and B direct asking rents*
*Asking rents weighted by available sf and grossed to FSG
0%
2%
4%
6%
8%
10%
12%
14%
16%
-200,000
-100,000
0
100,000
200,000
300,000
400,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 2017
Net absorption Direct Vacancy
Class A and B direct vacancy rates
(#)*
+#)*
-5%
5%
15%
25%
35%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 2017
Class A Direct Vacancy Class B Direct Vacancy
Vacancy rates- By submarket
9.8%
12.4%
6.1% 5.9% 6.7%
4.5%6.3% 6.1% 6.0%
3.2%
0.0%2.0%4.0%6.0%8.0%
10.0%12.0%14.0%
Oce
ansid
e/Vi
sta
Esco
ndid
o/Sa
n M
arco
s
Nor
th C
ount
y Co
asta
l
I-15
Corri
dor
La J
olla
/UTC
/Sor
rent
o
Kear
ny M
esa/
Miss
ion
Valle
y
Upt
own/
Hillc
rest
East
Cou
nty
Sout
h Co
unty
Oth
er
Direct asking rental rates- By submarket
$2.31 $2.37
$3.49
$2.61
$3.93
$2.78 $2.63 $2.22
$2.57 $2.36
$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50$4.00$4.50
Oce
ansid
e/Vi
sta
Esco
ndid
o/Sa
n M
arco
s
Nor
th C
ount
y Co
asta
l
I-15
Corri
dor
La J
olla
/UTC
/Sor
rent
o
Kear
ny M
esa/
Miss
ion
Valle
y
Upt
own/
Hillc
rest
East
Cou
nty
Sout
h Co
unty
Oth
er
Supply 12,330,685 SF
Total availability 1,053,871 SF / 8.5%
Direct vacancy rate 6.6%
Under construction 148,312 SF
Quarterly leasing 50,685 SF
2017 net absorption 28,144 SF
12-mo. rent % change 4.9%
Average asking rent $2.81 FS
Key market indicators
Dem
and
Pric
ing
Supp
ly
Last Qtr 12-MonthChange Forecast
Net absorption vs. direct vacancy
San Diego Medical O�ice Overview | Q1 2017
$3.33
$3.14
$2.25
$2.50
$2.75
$3.00
$3.25
$3.50
$3.75
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 2017
Class A Direct Asking Rent Class B Direct Asking Rent
Class A and B direct asking rents*
*Asking rents weighted by available sf and grossed to FSG
0%
2%
4%
6%
8%
10%
12%
14%
16%
-200,000
-100,000
0
100,000
200,000
300,000
400,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 2017
Net absorption Direct Vacancy
Class A and B direct vacancy rates
(#)*
+#)*
-5%
5%
15%
25%
35%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 2017
Class A Direct Vacancy Class B Direct Vacancy
Vacancy rates- By submarket
9.8%
12.4%
6.1% 5.9% 6.7%
4.5%6.3% 6.1% 6.0%
3.2%
0.0%2.0%4.0%6.0%8.0%
10.0%12.0%14.0%
Oce
ansid
e/Vi
sta
Esco
ndid
o/Sa
n M
arco
s
Nor
th C
ount
y Co
asta
l
I-15
Corri
dor
La J
olla
/UTC
/Sor
rent
o
Kear
ny M
esa/
Miss
ion
Valle
y
Upt
own/
Hillc
rest
East
Cou
nty
Sout
h Co
unty
Oth
er
Direct asking rental rates- By submarket
$2.31 $2.37
$3.49
$2.61
$3.93
$2.78 $2.63 $2.22
$2.57 $2.36
$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50$4.00$4.50
Oce
ansid
e/Vi
sta
Esco
ndid
o/Sa
n M
arco
s
Nor
th C
ount
y Co
asta
l
I-15
Corri
dor
La J
olla
/UTC
/Sor
rent
o
Kear
ny M
esa/
Miss
ion
Valle
y
Upt
own/
Hillc
rest
East
Cou
nty
Sout
h Co
unty
Oth
er
Class A and B Direct Asking Rents* Net Absorption vs. Direct Vacancy
* All rental rates on a full service basis
Totalinventory (sf)
Q1 2017 total net absorption
(sf)
12-month total net absorption
(sf)
12-month total net absorption(% of inventory)
Q1 2017 direct vacancy
(%)
Q1 2016 direct vacancy
(%)
Q1 2017 average asking
rent ($ psf)*
Q1 2016 average asking
rent ($psf)*
Oceanside/Vista 972,226 32,728 13,411 1.4% 9.8% 11.2% $2.31 $2.20
Escondido/San Marcos
901,969 -1,753 33,912 3.8% 12.4% 17.1% $2.37 $2.40
North County Coastal 1,373,196 -8,282 -3,546 -0.3% 6.1% 5.8% $3.49 $3.62
I-15 Corridor 883,466 -9,393 179 0.0% 5.9% 5.8% $2.61 $2.81
La Jolla/UTC/Sorrento
1,991,640 20,146 -25,670 -1.3% 6.7% 4.9% $3.93 $3.43
Kearny Mesa/ Mission Valley
1,462,243 1,857 11,438 0.8% 4.5% 5.3% $2.78 $2.98
Uptown/Hillcrest 968,556 -7,406 19,247 2.0% 6.3% 8.3% $2.63 $2.55
East County 1,806,037 8,186 32,746 1.8% 6.1% 8.0% $2.22 $2.16
South County 1,445,994 -2,498 6,690 0.5% 6.0% 6.5% $2.57 $2.50
Other 525,358 -5,441 -5,558 -1.1% 3.2% 2.1% $2.36 $2.09
Market Totals 12,330,685 28,144 82,849 0.7% 6.6% 7.3% $2.81 $2.68