"Construction costs and supply chain issues continue to be key concerns in medical lease transactions. Overall relocations costs have kept many tenants on the sidelines and in “renewal mode”; however, new medical lease activity picked up the first half of 2022. With recently completed deals and active transactions our healthcare team is on track to complete well over 125,000 square feet of new medical leases in Hampton Roads in 2022. We are seeing activity vary significantly from submarket-to-submarket as some markets have limited demand while others are very active. Rental rates continue to rise as Landlords take advantage of the limited medical inventory and attempt to position themselves to solve the construction cost conundrum encountered on the majority of lease transactions. Second generation medical space continues to see the lion’s share of activity due to lower construction costs and lease term flexibility when compared to first generation space."
Chris Kieran| Senior Vice President, Healthcare Services
- During H1 2022, the Norfolk medical office market experienced 79,104 square feet of positive net absorption, ending the year at a 7.5% vacancy rate. This positive absorption was spread throughout the market, with no submarkets seeing negative net absorption.
- Market rents have shown impressive gains in recent years, especially quality, Class A space. Since H1 2018, Class A rents have increased by $4.28, or 21%, ending H1 2022 at $24.65 per square foot.
- While medical lease transactions have consisted of new deals and renewals; renewals have been the central theme as most medical tenants have opted to stay in place due to relocation costs. With that said, there were some significant new lease transactions in the market as Gastroenterology Associates of Tidewater is expanding and relocating to over 13,000 square feet in Chesapeake, Hampton Roads Community Health Center leased 19,000 square feet in Norfolk, and National Neuropathy Center leased 5,000 square foot suites in Norfolk and Virginia Beach.