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Medical office rental rates rose 6 percent over past year in Greater Phoenix

Despite negative net absorption market is strong

Phoenix, May 6, 2021 – The Greater Phoenix medical office market posted 6.2 percent rental rate increases over the past 12 months and investment sales were relatively strong in first quarter, despite recording a three-month period of negative net absorption. These statistics are part of the first quarter 2021 Medical Office Research Report released by Colliers in Arizona.

Rental rates for medical office space rose during the past 12 months and are anticipated to continue rising, as Phoenix becomes a top-tier destination for medical practices to relocate and expand. Phoenix is the top major metropolitan area in the country for population growth, which is driving demand for healthcare services.

Rental rates at the end of first quarter were $22.92 per square foot, marking a 3.1 percent increase over-the-quarter. Midtown/Phoenix submarket posted the largest year-over-year increase of 10.7 percent to $22.43 per square foot. This was followed by Chandler and Downtown North submarkets, which increased 9.7 percent to $20.45 and 9.0 percent to $21.58.

Net absorption during first quarter was -12,431 square feet, which marked the end of a five consecutive quarter run of positive absorption. The Loop 303/Surprise area posted the largest net absorption with 26,599 square feet, followed by the Piestewa Peak Corridor with 21,742 square feet of net absorption during first quarter.

The rollout of COVID vaccines increased confidence in the market, which led to a 4.1 percent increase during the quarter of new deals. Despite the increase during the quarter, the number of deals was still down 9.5 percent year-over-year.  Big deals signed during first quarter included United Urology Group leasing 24,434 square feet at 17300 N. Perimeter Drive and Dignity Health expanding its footprint in the East Valley with a lease for 12,326 square feet at Mercy Gilbert Medical Plaza.

Medical office vacancy ended the quarter at 13.2 percent, which was 10 basis points lower than first quarter 2020, but matched the vacancy at year-end 2020. Downtown North, which has more than 1.2 million square feet of inventory, posted the lowest vacancy at 2.9 percent. The Loop 303/Surprise submarket posted the largest decrease in vacancy year-over-year, dropping 490 basis points to 10.7 percent. Unlike the traditional office market, the medical office market has not been impacted by an increase in sublease space availability.

First quarter 2021 marked the first time in five quarters that no new medical office product was delivered. Approximately 325,000 square feet of new medical office space is under construction, which is an increase from fourth quarter 2020, but marks a decline of 36 percent from the same time last year. Arrowhead submarket leads the market in construction of medical office space, including a 128,000-square-foot facility fully leased to Banner Health. The West I-10 submarket saw the start of construction for two 10,000-square-foot speculative buildings at The Fields at Verrado.

The transaction volume of investment sales during first quarter was very active with 10 transactions (over 10,000 SF and $1 million), totaling $86 million. This marks an increase of almost 28 percent year-over-year and 48 percent over-the-quarter.

The median price paid per square foot climbed dramatically to $373, reaching the highest prices ever paid for medical office space in the city. Only three buildings traded below $200 per square foot.  Sales volume was predominantly focused in the Southeast Valley, where more than 50 percent of the volume occurred in four transactions.

As the city’s population grows and we increase the number of healthcare educational options, Greater Phoenix will expand its need for medical office space. Land prices and construction costs are increasing, which will result in even higher rental rates for new medical office space coming online.

About Colliers International
Colliers (NASDAQ, TSX: CIGI) is a leading diversified professional services and investment management company. With operations in 67 countries, our more than 15,000 enterprising professionals work collaboratively to provide expert advice to real estate occupiers, owners and investors. For more than 25 years, our experienced leadership with significant insider ownership has delivered compound annual investment returns of almost 20% for shareholders. With annualized revenues of $3.0 billion ($3.3 billion including affiliates) and $40 billion of assets under management, we maximize the potential of property and accelerate the success of our clients and our people. Learn more about how we accelerate success at corporate.colliers.com, Twitter @Colliers and LinkedIn.

Colliers in Arizona has served clients locally and globally for more than 40 years.

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Phillip Hernandez

Research Manager

Phoenix

As research manager for Colliers International in Arizona, I am responsible for proactively developing and implementing research objectives and directing all research activity for the Arizona offices.

I provide leading-edge, thought-provoking research and analysis of market data for use in producing quarterly statistical market reports for each property discipline, as well as other ad hoc reports, research projects and presentations. I analyze and interpret real estate trends and maintain a database of economic indicators to provide forecasts.

Regardless of the property type or sector, I believe each has a story to tell and that data provides the opportunity to redefine the narrative. With a background in location analytics, I am highly experienced in interpreting complex data sets. Using the latest technology, I developed a system to blend analytics with a visually attractive approach to bring data to life.

Focusing on business development, I leverage market intelligence and insights for thought leadership content strategy in support of client engagement. My goal is to strategically align research and business development efforts and present research in an easily digestible format that promotes Colliers’ market share and revenue growth.

Colleagues describe me as a brilliant storyteller and a passionate, creative and experienced professional.

Prior to joining Colliers, I served as a business analyst at CBRE, where I specialized in creating tailored research reports, as well as unique and interactive applications and dashboards that elevated the market position of assets.

I delivered weekly research updates with relevant lease and sale comps, custom competitive sets and current market activity. I provided complex market and trend analyses, monitored an extensive database of proprietary market data, and delivered custom quarterly and annual reports that were strategically positioned towards targeted clients. I also led weekly department research meetings to develop initiatives surrounding market trends, produce innovative industry solutions and analyze client-centric objectives.

Previously, I was a GIS analyst for the central region of CBRE. Working exclusively with top-performing markets, I created unique models that illustrated custom real estate datasets through location analytics. I produced high-quality geographic and demographic maps, and investigated multiple approaches to storytelling through map and market analytics.

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