PHOENIX—The Greater Phoenix medical office market strengthened in 2015, particularly in the second half of the year. Part of the improvement in the local medical office market is being driven by a strong pace of employment growth in the healthcare sector. More than 9,000 jobs were added in this segment of the local economy in 2015, representing growth of more than 4%.

Vacancy ended the year below 17%, the lowest figure since mid-2008. Local vacancy is expected to continue this gradual pace of improvement, even as a few new development projects come onboard, according to the fourth quarter 2015 medical office market report released by Colliers International in Greater Phoenix.

Michael Dupuy, associate vice president at Colliers International in Greater Phoenix, tells GlobeSt.com: “Despite improvements in occupancy levels and asking rates reported from the fourth quarter, the market still slants in the tenant's favor. There are certain pockets around town in which landlords have the upper hand, but they are significantly outweighed by the instances in which they are not. If inventory levels remain the same, we're still years away from a normal, healthy market at this pace. If you want to know what the next 24 months will look like, pay attention to what the larger, sophisticated users are doing.”

Other stats in the Colliers report show medical office vacancy in Greater Phoenix improving in 2015, falling 100 basis points to 16.9%, marking the sixth straight calendar year where medical office vacancy improved. With vacancy tightening, asking rents have begun to push higher. Average asking rents ticked higher in both on-campus and off-campus buildings.

Sales for medical office buildings were mixed. Sales of medical office condos slowed, but activity gained momentum in non-condo, traditional medical office properties. The median price in condos sold during the fourth quarter was $166 per square foot, 12% higher than during the third quarter. In 2015, the median price spiked 26% from 2014 to $159 per square foot, says Colliers.

Sales velocity for non-condo medical office buildings surged 39% higher than levels recorded in 2014. The median price in sales of traditional medical office buildings was $118 per square foot in the fourth quarter, 11% lower than the third quarter figure. For the full year, the median price inched up 3% to $126 per square foot.

Colliers says the forecast for the Greater Phoenix medical office market is favorable for 2016, as demand will be spurred by both employment growth and population expansion. Early estimates call for population growth of more than 2% in 2016 and job growth topping 3%. These gains will translate directly into greater demand for healthcare services, which will fuel tenant demand for medical office space.

The investment outlook for medical office properties is brightening, as property fundamentals have stabilized and are beginning to improve. The greatest rise in activity has been in the midsize multi-tenant buildings ranging from 10,000 to 25,000 square feet. Collectively, these transactions, which typically feature between five and 10 tenants, accounted for nearly 60% of the total activity in 2015, the report concludes.

Instant Insights /

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