Q1 2020 Medical Office Market
Forecasts from last quarter predicted that Q1 2020 would be extremely healthy in every CRE product type.
- First quarter medical office posted 24,349 square feet of market wide positive net absorption.
- Midtown/Central Phoenix, Mesa East, Arrowhead and Deer Valley submarkets each showed strong positive absorption levels.
- During 1Q 2020, an additional 78,817 square feet was completed, over 20 percent of the delivery level for all of 2019.
- The market currently has 854,197 square feet under construction.
- Vacancy settled at 14.5 percent, 10 bps higher over the quarter.
- Rental rents increased 1.5 percent during first quarter, and 3.4 percent year-over-year, settling at $21.42 per square foot.
- Investment sales volume settled at $67 million during first quarter
- Median price per square foot declined from the previous quarter of $205, to the current $167 per square foot.
Updated employment figures from Bureau of Labor and Statistics revealed Maricopa County added over 89,000 new jobs to the market in 2019. Maricopa County became #1 in the nation for jobs added.
As of February, the Phoenix MSA had an unemployment rate of just 3.9 percent, 10 bps lower than the month previous, and 30 bps lower than a year ago. Total Non-Farm Employment was up 3.36 percent over the year from February of 2019. All these present clear signs of a healthy economy, which fuels the commercial real estate market.
Outlook: The forecast for the medical office market remains largely favorable. Healthcare is expected to be one of few industry sectors that will gain jobs from the pandemic. Pent-up demand from the cancellation of procedures, will result in countless medical practices working tirelessly to meet the needs of their patients.
The current economic situation will also create new demand, as policy changes could potentially alter space and size demands of medical practices. We currently have a shortage of physicians in the Valley to accommodate the fast-growing population. There will be a small period of price confusion after we open the economy and the market shifts to discover where it is positioned.
In the midst of the COVID-19 outbreak, information and data is emerging at a quick and uneven rate. The information contained herein has been obtained from sources deemed reliable at the time the report was written. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.