The medical office market in Phoenix has seen increasing demand, with a falling vacancy rate since 2012. In the West I-10 submarket, the vacancy rate is as low 4%. However, this year, the vacancy rate is expected to increase, not because of the pandemic, but because new construction projects expected to deliver this year.

“Three of the top five largest healthcare facilities currently under construction are hospital expansions,” Phil Hernandez, research manager at Colliers International, tells “New construction of office medial has continued to follow population growth patterns. Focal areas are the southeast valley and the northwest and west valley. Of the properties that were either built in 2019 or are currently under construction 83%, of them are within these three areas.”

Like growth in other real estate sectors in Phoenix, medical office activity has been driven by jobs. Nearly all of the major industries added jobs in 2019, and education and health care led the job gains. “The medical industry has not yet caught up to population growth,” says Hernandez. “In Maricopa County he Health Care industry saw a 3.7% increase in jobs from 2017-2019 and is projected to see 4.1% increase by 2021. The Medical office market will continue to see growth. Education and Health Services super sector added the most amount of jobs in 2019, adding 20,400 jobs to the economy in Metro Phoenix.”

With jobs driving as the main driver of demand, there is some concern that the coronavirus pandemic, which threatens employment in several industries, could impact the market. However, Hernandez doesn’t expect the economic disruption caused by the pandemic to affect the medical office market. “The recent disruption will have the biggest effect on tourism and retail, which includes restaurants as we continue to see closures,” says Hernandez. “However, the real estate industry will keep a close watch on construction, we have yet to see construction slow down, but as we continue to watch the economy of the state and country this can easily change. The Federal Reserve is taking drastic actions to ensure credit is flowing to both businesses and household. We are still learning more and more about the situation daily and how it will leave our economy.”