Q3 2019 Medical Office Market
- Greater Phoenix continues to remain in the Top 5 metros for job creation in the country, albeit with moderating growth. During the 12-month period ending in August, preliminary estimates show that employers added 57,800 net new jobs, an increase of 2.7 percent but below the 62,500-average increase over the first half of 2019.
- According to the BLS (Bureau of Labor Statistics), over-the-year nonfarm employment rose in 32 of the 51 metropolitan areas with a 2010 Census population of 1 million or more, while employment was essentially unchanged in 19 areas.
- Net absorption, which turned negative in Q2 at (152,827) square feet, rebounded to positive territory with nearly 100,000 square feet absorbed.
- Employers continue to add workers at a very active pace with healthcare employment rising 3.7 percent over-the-year, beating the overall employment market increase of 2.7 percent.
- Year-to-date developers have added 211,582 square feet to the market. Despite the increase in deliveries vacancy edged 30 basis points (bps) lower to end the quarter at 13.6 percent and marks the 8th consecutive quarter with vacancy rates below 15 percent.
- Asking rents witnessed a mild 0.2 percent over-the-quarter increase but rose 3.1 percent over-the-year to end at $21.16 per square foot.
- Year-to-date investment sales volume increased to $238 million across 41 transactions, which is the highest reading since 2015’s $288 million amount. The median sales price per square foot was $158, with cap rates resting at 8 percent.
Outlook: The forecast for the local medical office market remains largely favorable. The primary drivers of medical office demand remain firmly in place. Robust population and job growth should continue to propel the MOB market in both the near-to-medium terms.
More than $1 billion of bioscience-related projects are currently under construction, with more than $2 billion set to launch over the next couple years and expected to create nearly 7,000 new jobs once all projects are completed.