Colorado Real Estate Journal - January 21, 2015
If you have been sitting on the sidelines waiting to look for new medical office space, brace yourself to hear some bad news: There’s not much left to choose from. A once abundant supply of prime medical office space in Colorado Springs has withered away due to popular demand. Several large, vacant medical office buildings were readily available to lease just a couple of years ago, but demand was high and now only a few desirable spaces remain. Landlords of multiple Class A medical office buildings in northern Colorado Springs aggressively filled these unoccupied spaces, which leaves current potential lessees anxious to choose among fewer options. Recent leasing statistics show that in the last 36 months hundreds of thousands of square feet of medical office space have been leased. Vacancy in the Class A medical office market was once a whopping 25 percent and is now only 6 percent. This enormous surge in demand for space has been prevalent throughout the northern Colorado Springs area. The Briargate Medical Pavilion b u i l d i n g s , located at 4105 and 4125 Briargate Parkway, have leased space to numerous large medical tenants, i n c l u d i n g C h i l d r e n ’ s H o s p i t a l , Kaiser Permanente and Front Range Orthopedics. Each of the two buildings has 85,000 sf and now only a total of 18,000 sf is available for lease. The 117,000-sf medical office building on the campus of Memorial North Medical Center is now 92 percent occupied because of its recent 30,000-sf lease to Colorado Springs Orthopedic. Other medical buildings, such as Chapel Hills Medical Center, have seen similar leasing activity. This 62,000-sf building located at 595 Chapel Hills Drive is now 88 percent occupied. Over 19,000 sf of the building has been leased since the start of 2014.
The properties at 9320, 9348 and 9362 Grand Cordera have all been recently purchased or are currently under contract, illustrating increased sales activity. Dr. James Lee recently purchased 9320 Grand Cordera with Alliance Urgent Care. In July, Dr. Vin Chung purchased a 16,000-sf unit in the 9348 Grand Cordera building. The 9362 Grand Cordera building is now under contract for purchase and was the last large block of medical office space left in this part of Colorado Springs. I am confident it will either be leased or sold again to a third party in the next six to 12 months. All of this activity has led to rising lease rates for medical office space. Less than two years ago, an established medical practice could have obtained a build-out allowance equal to $60 per sf with a lease rate of $13 to $14 per sf triple net over 10 years. Seeing this increasing demand caused landlords to pull back. Now, they are offering only a $40 per sf allowance and a rental rate of $15 to $20 per sf triple net. In many other instances, landlords are holding onto their vacant spaces and waiting for the right, large-footprint tenants. Are you ready for the good news? There may still be time to secure your future with a prime office space location. Starting now and continuing into the near future, aging baby boomers will predictably require more health care. To serve the increasing medical needs of this fast growing demographic, the north and east sides of Colorado Springs will be prime locations for medical offices. With demand only increasing and far outpacing supply, savvy investment groups and developers will purchase available land in these locations to construct medical office buildings. These sites, however, will not stay on the market for very long. In fact, they are already being scooped up. Veritas Management Group recently acquired ground off of Powers Boulevard, just north of Woodmen Road, to build an 80-bed rehabilitation facility. Boldt Development, a Milwaukee, Wisconsin, developer, is planning to construct a 70,000-sf medical building adjacent to St. Francis Medical Center. We at Cascade Commercial Group predict 2015 will be a time of medical users and developers snatching up the remaining ground parcels. Other developers will be contemplating building speculative medical space in 2016.