The growth of major hospital systems in the Columbia, South Carolina area has been the catalyst for the development of hospital-based medical office buildings (MOB’s) adjacent to their respective campuses. This development allows the hospital systems to cluster medical practices to take advantage of referrals, but also gives overflow space as needed to the hospital system. Historically, MOB’s have been located around the four major hospitals, Lexington Medical Center, Palmetto Baptist, Palmetto Richland and Providence Hospital. As Columbia’s population has expanded, non-hospital-owned MOB’s have been developed and clusters have begun to emerge in the Irmo and Northeast submarkets.
The past several years have proven to be very “stable” for the medical office market in Columbia, with 2006 being no exception. Over the past 12 months, occupancy rates in the medical office market varied only slightly throughout the year, closing 2006 at 91.23%. While this occupancy is up from 90.20% at year-end 2005, in such a small market this one percentage point change reduced vacant space by only 19,040 square feet.
The most obvious fluctuation in the medical office market has been a continual increase in rental rates, rising from $20.20 per square foot at year-end 2004, to $20.67 per square foot at year-end 2005, to $21.67 per square foot at year-end 2006. Occupancy over the past three years has remained within one or two percentage points of the 90% level.
The hospital-based medical office market has remained relatively unchanged over the past several years other than a rise in rental rates, which can be attributed to increased landlord expenses. A new trend has emerged among privately owned medical practices. We are now seeing these practices either purchasing or constructing their own buildings as a way of taking advantage of both lower interest rates and long-term depreciation, while still maintaining proximity to hospitals.
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