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June 24, 2024
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2020 Year-End Look at San Diego’s Medical Office Market


This report was provided by Joe Zurek, Senior Associate at the San Diego office of Cushman & Wakefield


SUPPLY AND DEMAND: Resiliency in a Pandemic

At the end of Q4 2020, San Diego’s medical office direct vacancy was 6.3%, an increase of 50 bps from last quarter and 90 bps from a year ago. Encouragingly, vacancy rates for every submarket remained in the single digits for the ninth consecutive quarter. The highest vacancy was recorded in the North County submarket and the lowest in South County submarket, with largest quarterly increase in vacancy, 120 bps, recorded in the North County submarket.

San Diego County absorbed 153k sf of medical office space in Q4, bringing the year end figure to 93k sf of net positive absorption. Class A properties experienced the most positive absorption at 118k sf this quarter, finishing the year with 98.4k sf of positive absorption. Class B saw 54.7k sf of positive absorption in Q4, finishing the year with -6.3k sf of negative absorption, followed by Class C which experienced -19.7k sf of negative absorption in Q4 and finished the year with 934 sf of positive absorption. This reflects the observed trend of space users’ flight to quality as healthcare facilities receive an additional level of scrutiny due to the ongoing pandemic. An encouraging statistic is that the 632.8k sf of total leasing activity in 2020 is a 65% increase over total leasing activity in 2019.

While smaller providers have been able to shift locations, often towards high-quality healthcare assets, large provider groups have no viable options and been obligated to seek larger build-to-suit projects. Major health systems such as UCSD, Scripps, Kaiser Permanente, Sharp Healthcare and the Department of Veterans Affairs all have build-to-suit projects planned or under construction across the county. The Central Suburban submarket will add the most to inventory with 270k sf under construction, all pre-leased with completion due 2021 or later.

PRICING: Rents Rise Across the Board

Average county wide asking rent across all classes was $3.17 per square foot (psf) on a monthly full service basis in Q4 2020, an 8 cent increase from previous quarter and a 14 cent increase from a year ago. Average asking rent for Class A increased 1.1% to $3.72 psf compared to the previous quarter, while Class B rent increased by 2.3% to $3.11 psf , driving this quarter’s increase.

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