Population growth in Phoenix expected to drive medical office market reports Colliers International

Q3 performance in medical space remains healthy during pandemic

Phoenix, November 9, 2020 – The Greater Phoenix medical office market remained healthy during third quarter, despite an increase in sublease availability. During the past three months, the market posted positive net absorption and a slight increase in rental rates, as well as maintaining vacancy below 15 percent. Continued population growth is expected to drive demand for healthcare and medical office space.

Approximately 87,913 square feet of positive net absorption took place during third quarter, marking the third consecutive quarter of positive net absorption this year. The Glendale submarket drove net absorption for the second consecutive quarter. That submarket’s delivery and move-in of akos at akos Medical Campus Phase I led the overall market in third quarter.

Vacancy rose 30 basis points over-the quarter to finish September at 13.7 percent. Vacancy in medical office space has risen 100 basis points year-over-year. Sublease space increased 17 percent over-the-quarter and now accounts for 1.3 percent of the entire medical office inventory.

Rental rates increased 1.4 percent over-the-quarter and 3.8 percent year-over-year, finishing September at $21.90 per square foot. Rental rates increased 19 of the past 20 quarters.  Central Scottsdale posted the largest rental rate increase year-over-year, increasing 10.1 percent to $26.59 per square foot.

The medical office market added 106,000 square feet of new properties during third quarter, which averaged 47 percent vacancy. These new building are primarily located in the Glendale and Deer Valley submarkets. Approximately 56 percent of projects under construction are pre-leased, which will bode well for the vacancy rate to remain healthy with these additions. Speculative development will be paused for a few months because developers are cautiously awaiting return of workers to offices for many tenants.

Investment sales volume increased dramatically 250 percent during third quarter but has decreased 15 percent over-the-year to $40 million. The largest deal of the quarter was the $27 million sale of Scottsdale Gateway I. The median price paid for medical office buildings increased 152 percent during third quarter to $160 per square foot. That price is below the five-year average of $189 per square foot.

Cap rates remained low at less than 8 percent. Medical office condo sales favored investors during third quarter. Sales volume increased 67 percent year-over-year and 29 percent over-the-quarter to $15,945,314. The median price per square foot for medical office condos finished the quarter at $233, which is a 9.4 percent increase year-over-year. Approximately 61 percent of medical office condo sales took place in the Scottsdale and Southeast Valley submarkets.

While leasing activity slowed during third quarter, it is expected to improve again to close the year and for the first portion of 2021. As population is anticipated to increase 1.5 percent annually, Phoenix has become a priority market. The medical office market will thrive as the population grows, motivating more development, leasing and investment sales.

About Colliers International
Colliers International (NASDAQ, TSX: CIGI) is a leading diversified professional services and investment management company. With operations in 68 countries, our more than 15,000 enterprising professionals work collaboratively to provide expert advice to maximize the value of property for real estate occupiers, owners and investors. For more than 25 years, our experienced leadership, owning approximately 40% of our equity, has delivered compound annual investment returns of almost 20% for shareholders. In 2019, corporate revenues were more than $3.0 billion ($3.5 billion including affiliates), with $33 billion of assets under management in our investment management segment. Learn more about how we accelerate success at corporate.colliers.com, Twitter @Colliers and LinkedIn.

Colliers International in Arizona has served clients locally and globally for more than 40 years.

Related Experts

Phillip Hernandez

Research Manager


As research manager for Colliers International in Arizona, I am responsible for proactively developing and implementing research objectives and directing all research activity for the Arizona offices.

I provide leading-edge, thought-provoking research and analysis of market data for use in producing quarterly statistical market reports for each property discipline, as well as other ad hoc reports, research projects and presentations. I analyze and interpret real estate trends and maintain a database of economic indicators to provide forecasts.

Regardless of the property type or sector, I believe each has a story to tell and that data provides the opportunity to redefine the narrative. With a background in location analytics, I am highly experienced in interpreting complex data sets. Using the latest technology, I developed a system to blend analytics with a visually attractive approach to bring data to life.

Focusing on business development, I leverage market intelligence and insights for thought leadership content strategy in support of client engagement. My goal is to strategically align research and business development efforts and present research in an easily digestible format that promotes Colliers’ market share and revenue growth.

Colleagues describe me as a brilliant storyteller and a passionate, creative and experienced professional.

Prior to joining Colliers, I served as a business analyst at CBRE, where I specialized in creating tailored research reports, as well as unique and interactive applications and dashboards that elevated the market position of assets.

I delivered weekly research updates with relevant lease and sale comps, custom competitive sets and current market activity. I provided complex market and trend analyses, monitored an extensive database of proprietary market data, and delivered custom quarterly and annual reports that were strategically positioned towards targeted clients. I also led weekly department research meetings to develop initiatives surrounding market trends, produce innovative industry solutions and analyze client-centric objectives.

Previously, I was a GIS analyst for the central region of CBRE. Working exclusively with top-performing markets, I created unique models that illustrated custom real estate datasets through location analytics. I produced high-quality geographic and demographic maps, and investigated multiple approaches to storytelling through map and market analytics.

View expert