CREJ - Healthcare Properties - June 2016
Denver’s medical office market remains healthy, according to recent reports noting improvements in construction activity, investment activity and rental rates. CBRE’s most recent report, from fourth-quarter 2015, noted that the average direct asking lease rate increased to $27.34 per square foot full service gross quarter over quarter, representing an increase of 3.1 percent year over year. The reported also noted that overall direct vacancy decreased to 9.6 percent in the quarter – a 19 basis point increase year over year. Additionally, construction activity ended the year at 325,000 sf. Investment sales ended 2015 with $87 million transacted. CBRE expects an increase in transaction volume in 2016, pushing activity to 2014 levels when more than $120 million was closed. “Strengthening fundamentals and continued economic progress will afford new opportunities to upgrade the health care system, allowing investors and lenders to drive transaction levels up,” according to CBRE. NewMark Grubb Knight Frank’s first-quarter 2016 medical office building submarket report noted that total vacancy was 8.74 percent with on-campus properties ending the first three months of the year with a 5.37 percent vacancy figure. The central submarket, metro Denver’s largest medical office submarket with 3.29 million sf in 52 buildings, had one of the lowest vacancy rates of all the submarkets surveyed at 5.39 percent. The highest weighted average rental rates (full service gross) were seen in the Parker/Castle Rock submarket with a rate of $28.32. Overall weighted average rental rates ended the quarter at $24.25 across the metro area, with on-campus properties averaging $28.99 versus $23.13 to their off campus counterparts.