Phoenix medical office market looks healthy, despite political turmoil

Above: Park 10 Medical Center: Located along the I-10 within the Arizona Health Corridor, it will offer an 87,000-square-foot MOB as well as two potential PAD sites, which is expected to be delivered in Q3 2018. (Provided rendering) Real Estate | 27 Jun, 2017 |

Political uncertainty and the proposed replacement of the Affordable Care Act have many in the healthcare industry wondering what’s next.

Despite the current quandary, Metro Phoenix’s medical office market is expected to remain healthy for the foreseeable future following a strong 2016 that produced re-assuring sales and leasing numbers.

Sharing their analysis and outlook of last year’s numbers, Trisha Talbot and Kathleen Morgan, both managing directors at Newmark Knight Frank in Phoenix, are the exclusive agents for almost 1.5 million square feet of medical office properties in Phoenix.

On the leasing side, Morgan says, “Medical office building (MOB) product in Phoenix continues to be healthy with the vacancy dropping over 200 basis points from the first quarter 2016 through the end of 2016.”

Sales for MOBs also remained strong throughout last year with the closing of 43 transactions, totaling 858,660 square feet at an average price of $155.64-per-square-foot.

Talbot notes, “Although the volume of sales decreased slightly in 2016 from the first quarter to the end of the year, the price per square foot for MOBs steadily rose and the capitalization rates compressed.”

Morgan adds, “From an investment standpoint, healthcare product is often considered ‘recession proof,’ and I expect healthcare product sales to remain strong in 2017.”

In addition to sales and leasing, the healthcare duo also notes an uptick in new medical office development, which is the byproduct of hospital growth and need to support an increasing patient base.

Following the implementation of the ACA, hospitals began purchasing practices, explains Morgan, “And much of the existing space has either been absorbed or is no longer functional for multidisciplinary practices, which require larger floorplates than are available in legacy healthcare product.”

Since MOB activity follows hospitals, which follows population growth, some submarkets in the Valley are hotter than others like the Town of Gilbert, one of the fastest growing suburbs in Metro Phoenix.

Talbot notes, “The Dignity Health Mercy Gilbert Medical Campus has spurred the development of medical office product surrounding it, including Spectrum Medical Commons, a 44,000-square-foot MOB expected to be delivered in Q4 2017.”

The strongest activity of new product underway and active pre-leasing for new medical office developments, she says, is west of the Interstate 10 corridor in Phoenix, Avondale and Goodyear, and extends north on the Loop 101 to Glendale and Peoria.

That includes 200,000 square feet of MOB space currently under construction at the Westgate Healthcare Campus in Glendale.

Talbot and Morgan are actively representing the campus to attract national companies and local providers to the state-of-the-art outpatient healthcare campus that’s strategically located next to Dignity Health St. Joseph’s Westgate Medical Center and near other surrounding hospitals operated by Abrazo Community Health Network and Banner Health.

This reflects the current demand of MOB users seeking to occupy space that’s strategically located near a major hospital or medical campus.

Looking ahead, Talbot says, “The need for multidisciplinary practices won’t change, and increasing population growth — as well as a growing patient base — ensures a healthy healthcare market for the foreseeable future.”

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