For healthcare providers looking to lease space in medical office buildings (MOB), Northeast Atlanta it is a “buyers” market. Vacancies have remained over 20% for the past two years creating an environment where most landlords are prepared to negotiate great deals. In the mid 2000’s vacancy rates where stable around 11%. During this period, as new medical office buildings were completed, tenants expanding and new practices were opened at a pace that absorbed all the new space. However, in 2007 with the delivery of over 300,000 square feet of new medical office buildings and absorption of only 100,000 square feet, vacancy rates spiked by over 7% points. Negative absorption, (a net loss in total square feet occupied) in 2008 and 2009 has pushed vacancy rates to over 22.5% in 3rd quarter 2009. We anticipate this trend to stabilize in 2010 as favorable lease terms and supporting demographics create greater demand for vacant space. The Northeast Atlanta MOB market, located along the I-85 corridor with three major nodes around Snellville, Lawrenceville and Duluth, GA has over 2 million square feet in 78 medical office buildings. After adding 10 new projects in 2007 only two 10,000 square foot buildings were completed during the past two years. Both are owner/user projects with additional space for lease. The 127,000 square foot Meadows & Ohly, LLC development on the campus of Gwinnett Medical Center is expected to be completed in 4th quarter 2009. The MOB is currently 88% preleased at a rate of $19.00 to $22.00 per square foot triple net depending on lease term and build out allowance. No other large projects are planned during the next several years.
Average quoted rental rates peaked in 2006 and 2007 at over $23.50 per square foot. During the past 2 years rates began to decline and at $20.94 per square foot in the 3rd quarter of 2009 are at a five-year low. The softening of the market(s), over supply and deal making has created this downward pressure on rental rates. Around this average, rates can vary from $14.00 to over $22.50 per square foot. Building quality, location, amenity base, access and tenant mix are in part the reasons for this spread. In addition, some properties quote rates on a full service bases, which includes operating expenses. Others quote rates net of expenses where the tenant pays separately for utilities, taxes, building insurance, janitorial and common area maintenance, which can add $7.00 to $9.00 per square foot to the lease rate. Be mindful to compare like kind quoted rates.
Recent, notable deals include: Nanston Dental Group (14,000 SF, East Oak Medical Center, Lawrenceville), Progressive Healthcare (5,135 SF, Terrace Park Medical Center, Lawrenceville), Athens ENT (5,223 SF, Terrace Park Medical Center, Lawrenceville) and Gastroenterology Specialists of Gwinnett, P.C., (1,525, Hudgens Professional Bldg, Suwannee). We anticipate an up-tic in activity in 2010 brought on by more aggressive landlord deals offering lowered rates and increased incentives.
For a complete report of supporting data and/or request a market study for areas not yet reported on this blog please give us a call or email Richard Smith. We can also provide complete full market research studies including available spaces, lease rates, operating expenses, sales comparables and tenant rosters on medical office buildings across the Southeast Region. We work with health care professionals evaluating real estate options.
