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11/20/24
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This report was provided by real estate services firm Kidder Mathews
Market Highlights
Total medical office inventory: 17.1 msf
Medical office space leased in 3Q24: 207.5k sf
3Q24 sales volume: $115.1 mil
Leasing Activity
The third quarter of 2024 marked the second consecutive period of negative net absorption, following 10 quarters of positive absorption. Overall vacancy rose slightly to 13.1%, up from 12.8% in Q2, and average asking rents decreased to $29.59/sf per year, down by $0.39 quarter over quarter. While these shifts are minor, we will continue monitoring for emerging trends. Notably, tenant business models are evolving, with some tenants now becoming real estate owners, which reflects a shift in long-term real estate strategies. Additionally, were seeing second-generation medical spaces returning to the market, creating new opportunities for expanding medical practices to secure well-suited, previously built-out spaces.
Sales Activity
Sales activity in the third quarter reached over $115 mil, primarily driven by major recapitalizations. However, market momentum slowed toward the end of the quarter due to uncertainty surrounding the election and fluctuating interest rates.
Construction
The recent trend of no new deliveries for medical office properties has shifted, with several developments now underway including:
The 60k sf Abrazo Buckeye Medical Office Building, located off Roosevelt and Verrado Way in Buckeye, developed by Cambridge Holdings Inc
The 30k sf Rancho Santa Fe II in Avondale, developed by MCR Companies
PMBs 50k sf Goodyear Medical Plaza in Goodyear
The upcoming 66k sf Celebration Medical Center in Gilbert
Additionally, office-to-medical conversions and accommodating office owners are helping to alleviate some of the demand pressure for medical tenants.
The information in this update was composed by the Kidder Mathews Phoenix healthcare brokerage team of Michael Dupuy, Fletcher Perry, Rachael Thompson, Perry Gabuzzi, Chad Sutton, and Zack Harris.
Data source: CoStar
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