Atlanta’s specialty use medical office building market totals approximately 18.6 million square feet in ten primary submarkets. Our research tracks multi and single tenant medical office buildings that are generally over 10,000 square feet. Non primary use medical office buildings including traditional office buildings, business parks and retail space are not included in our analysis. While accommodating some medical uses these properties do not provide the referral basis and services of a professionally run medical building. This shadow market, however, could be as much as 27.4 million square feet; the total amount of vacant traditional office space.
Overall vacancy rates another indicator of the health of a real estate market has increased to 19.0% at mid-year 2010 from 14.5% during mid-year 2007. In six of the largest submarkets North Fulton has the highest vacancy rate of 37.1% while Northlake (including Decatur and I-20 east) has the lowest vacancy rate of 11.4%. The total amount of vacant space is also rising. While the market delivered over 1.5 million square feet of medical space during this time, overall net negative absorption and lagging leasing activity has created a market with over 3.5 million square feet of vacant space.
The cost of occupancy, in terms of rental rate per square foot has declined over the past few years. The current quoted rental rate on average is $21.47 per square foot down from $21.82 per square foot in 2009 and $22.10 per square foot in 2008. Newer class A, on-campus medical office buildings have lower vacancy rates and still demand a premium rental rate often several dollars above the market average. Also, rental rates can vary widely based on building quality, location, amenity base, access and tenant mix. In addition, some properties quote rental rates on a full service basis, which includes operating expenses. Others quote rates net of expenses where the tenant pays separately for utilities, janitorial, taxes, building insurance, and common area maintenance (TICAM), which can add $7.00 to $9.00 per square foot to the lease rate. Be careful to compare like kind quoted rates. We anticipate further declines in rental rates through free rent and other concessions.
Recent, notable leases include: Ownes & Stafford (4,275 SF, Sheffield Medical Bldg, Buckhead), Atlanta Ophthalmology Association (11,000 SF, Glenridge Medical Center, Central Perimeter), Emory Healthcare (5,689 SF, Medical Office Tower, Midtown), Executive Medical Suites (2,397 SF, Northside Medical Office Building, Johns Creek), Women’s Wellness (3,212 SF, One Wisteria Place, Lilburn) and Level Four Orthotics (2,635, Fayette Professional Center, Fayetteville) among others.
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, 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.
