Average quoted rental rates for MOBs are declining. After increases in 2009 rental rates reached a high of $21.83 per square foot before declining in each of the past three quarters ending 2010. The current average of $21.16 per square foot is down to levels not quoted since 2007. We anticipate future declines going into 2011. The most economical of the large medical sub markets are Northlake and South Atlanta with quoted average rates of $18.46 and $19.24 per square foot. Some markets have remained somewhat level with the highest average rates at $24.77 per square foot in the Central Perimeter market. At $31.00 to $32.50 per square foot the most expensive MOB’s being Lillibridge Healthcare Services on campus medical office buildings at the Doctor’s Center at St. Joseph’s Hospital.
Many physicians have taken advantage of current market conditions of lowered quoted rental rates and market incentives as evidenced by recent absorption trends. Absorption - the net difference in the amount of occupied space - was 116,574 in the last half of 2010 and 146,872 for the year. While the economic downturn affected medical office space with negative absorption in four of six quarters during 2008 and 2009 this year’s positive absorption is the result of pent up demand and a healthier outlook. The two leading submarkets were North Fulton and Northwest Atlanta with a total of 102,000 square feet positive absorption. The biggest losses were in the Northeast Market with losses of over 50,000 square feet of occupancy. We see strong activity and many potential physician expansions in existing and new locations going forward into 2011.
Outside of a few notable deliveries in 2010, development slowed substantially from 2007 through 2009 when an average of over 1,000,000 square feet of new medical office buildings were added to the market each year. Meadows & Ohly, LLC completed the 127,226 square foot medical office building on the campus of Gwinnett Medical Center. The MOB was 80% preleased on delivery at a rate of $21.00 per square foot plus taxes, insurance and common area maintenance (TICAM). The 21,000 square foot Premiere Health and Wellness Plaza was complete in North Clayton. The MOB currently is vacant and quoting $20.00 per square foot plus TICAM. The Camp Creek Medical Center building was completed in the Airport South market with rates quoted at $20.50 per square foot plus TICAM. This 30,000 square foot, two-story MOB is one of several buildings in this successful project that includes tenants such as Georgia Cancer Specialists, Orthopaedics of Atlanta, Southern Pain Institute and Tenet South Fulton, Inc among others. Additionally, Pinnacle Orthopaedics preleased 75% of the 32,500 square feet at 1505 Stonebridge Pkwy in Woodstock, GA when delivered in December.
The overall vacancy rates peaked at an all time high of 19.0% during the 2nd and 3rd quarter of 2010. With the nearly 3 million square feet delivered in the late 2000s at an average annual pace that overshot demand, vacancy rates steadily climbed from 13.1% in 2006 to 18.5% in 2009. Many of the older, lower class MOBs with aging mechanical systems and building designs lost occupancy to newer, more functional and efficient properties. With slowing deliveries and an uptick in absorption the vacancy rate had dropped back to 18.5% in the 4th quarter of 2010. This is a trend we anticipate to continue during the next several quarters.
Recent, notable leases include: Georgia Cancer Specialist (3,500 SF, Camp Creek Medical Center, Airport South); Georgia Retina, PC (3,706 SF, Gwinnett Medical Bldg); Emory University Hospital Midtown (5,429 SF, Medical Office Tower, Midtown); Atlanta Spine (3,349 SF, Sheffield Medical Bldg, Buckhead); MyOBGYN (8,949 SF, Southern Crescent Center, Riverdale); and Atlanta Cancer Care (11,178 SF, 3400 Old Milton Pkwy, North Fulton) among others.
For a complete report of supporting data and/or request for a market study for areas not yet reported on this blog, please give us a call or email Richard Smith, CCIM. 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.
