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8/28/23
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This San Diego Mid-Year 2023 Medical Office Market Report provided by Cushman & Wakefield
ECONOMIC OVERVIEW
Between May 2022 and May 2023, San Diego saw an increase in non-farm employment by 42,500 jobs, representing a growth rate of 2.8% year-over-year (YOY). The private education and health services sector accounted for the most significant job gains, adding 13,800 jobs (+6.1% YOY). The leisure and hospitality sector followed closely with the addition of 12,300 jobs (+6.3% YOY). The professional and business sector also experienced growth, adding 3,400 jobs (+1.2% YOY). During the same time, the monthly unemployment rate increased from 2.9% last year to 3.5%, in line with the quarterly average of 3.5%. San Diego has fully recovered the 249,300 non-farm jobs lost during the onset of the pandemic (March to April 2020), reaching pre-pandemic employment levels as of May 2023. Since May 2020, the region has added a total of 311,300 jobs. Projections indicate that all employment sectors in San Diego are expected to continue growing, with a combined growth rate of 2.5% in 2023 and 0.8% in 2024 compared to the five-year historical average of 1.2%.
SUPPLY AND DEMAND
In the face of past economic headwinds, the healthcare industry has been noticeably resilient. Through today’s economic turmoil, we can expect rising demand for care nationwide as well as in San Diego, providing opportunities for investors and occupiers who are able to manage costs and offer services that match patient demographics and diagnosed needs. San Diego’s medical office overall vacancy of 6.4% at the end of Q2 2023 increased slightly by 10 bps quarter-over-quarter (QOQ) and by 20 bps YOY. The market returned 15k sf in Q2 2023, with positive absorption in Class A space, but negative in Class B and C. Occupancy changes were positive in the Central Suburban and East County submarkets. Vacancy rates for all submarkets also remained in the single digits for the 19th consecutive quarter. The highest vacancy was recorded in the North County submarket at 8.8% followed by I-15 Corridor at 8.0%. The lowest vacancy was recorded in the South County submarket at 3.8%. Speculative construction is limited to a 10k sf medical office project as part of Village North in Del Mar Heights.
PRICING
The average county wide asking rent across all classes was $3.59 per square foot (psf) on a monthly full-service basis in Q2 2023, a 0.6% decrease from the previous quarter but a 4.1% increase from a year ago. Class B rents rose 4.9%, while Class A rents fell 1.0% from a year ago. The North County submarkets recorded the most average rent growth YOY at 6.7%, followed by an average rent increase of 4.3% in Mid City.
This report was provided by:
Joe Zurek
Director
Cushman & Wakefield
Nehal Wadhwa
Senior Associate
Cushman & Wakefield
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