By Lilly Riddle
The San Diego medical office market is showcasing resilience and growth potential, as indicated by JLL’s Q1 2024 Market Report. This positive outlook comes despite a seemingly stable net absorption of 16,402 square feet over the past 12 months, a figure driven by UC San Diego’s relocation within The Campus on Villa La Jolla. However, the market’s underlying strength is shown in several trends.
The region’s demographics are undergoing significant shifts, with a projected 49.7 percent surge in the population aged 80 and above and a 26 percent increase in those aged 70 to 79 over the next decade. This aging population is a driving force behind the sustained demand for medical facilities in San Diego.
The Centers for Medicare and Medicaid Services project a five percent annual growth in national healthcare spending from 2021 to 2030, reaching $6.8 trillion by the end of the decade. This escalating healthcare expenditure further reinforces the need for medical office spaces.
UCSD’s acquisition of Alvarado Hospital and pending partnership with Tri-City Medical Center in Oceanside are poised to reshape the region’s healthcare landscape. These moves are expected to influence the ambulatory care strategies of other health systems and physician practices, potentially leading to increased demand for medical office spaces as providers adjust their footprints.
San Diego’s medical office vacancy rate has remained stable at 5.6 percent, a 15-year low and well below the national average of 7.75 percent. This stability underscores the market’s strength. Nearly 80 percent of all medical office buildings in the region are fully occupied, with five buildings accounting for one-third of the county’s vacancy.
The demand for quality medical office space remains robust, particularly for Class A properties, which have a vacancy rate of 4.4 percent. This scarcity of fully improved medical space has contributed to a six percent increase in average asking rental rates from the end of 2022 to the end of 2023, with further increases expected, especially among Class A MOBs.
As financial markets and clinical workforce shortages normalize, and the cost of capital stabilizes, the San Diego medical office market is poised for growth. The confluence of demographic shifts, rising healthcare costs and moves by major healthcare providers like UCSD are all contributing factors. This presents an opportunity for investors and developers to capitalize on the growing demand for medical office spaces in this thriving market.
Overall, the San Diego medical office market demonstrates resilience and a positive growth trajectory. The region’s evolving demographics, coupled with increasing healthcare spending and strategic initiatives by major healthcare players, are fueling this positive outlook. As the demand for medical care continues to rise, the San Diego medical office market is well-positioned to meet this demand and thrive in the years to come.
