Medical Office Tenant Improvements Costs in San Diego

Medical-office-appraiser-san-diego-countyAs the leading commercial real estate appraisal firm in San Diego, IRR San Diego has provided valuation services for numerous medical office properties throughout San Diego County and surrounding areas. As valuation experts, we also have experience in appraising proposed medical offices, which involves analyzing the cost of medical office tenant improvements and determining how the tenant improvements (or TI’s) contribute to the overall property value.

Over time, we have amassed data regarding the cost per square foot of tenant improvements, which we offer today for our readers. Please see below for information on the cost to build out certain types of medical office space (sorted by date).

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Estate Planning Appraisal – Del Mar Medical Office

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Integra Realty Resources – San Diego has completed a commercial appraisal of a medical office property located in Del Mar in San Diego County. The building is approximately 18,300 square feet in size and is located on a 0.84 acre site. As of the effective appraisal date, the property was 84% leased.

The purpose of this commercial valuation was for estate planning purposes, which is one of IRR’s specialty practices. This type of valuation differs from traditional lender assignments in that there are typically different dates of value and a different definition of market value, which if not used may cause the IRS to reject the appraisal. When choosing a commercial real estate appraiser in San Diego, be sure to choose one who is familiar with what is to be included in appraisal reports for estate planning purposes.

San Diego Medical Office Update

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After a year of stabilizing market conditions for medical office space in the San Diego market, market indicators are showing some negative signs. Does this downward trend signify a larger market movement?

The table below summarizes vacancy rates and rental rate data from CoStar Group compiled by Integra Realty Resources – San Diego.

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Currently, the San Diego Office vacancy rate is approximately 10.0%, slightly up from last quarter. The increase is not significant but worth noting since vacancy rates of other property types have yet to increase this year.

What is also interesting to note is the average asking rental rate of medical office space in the San Diego market. Based on data from CoStar Group, rental rates hit the bottom of the market in Q4 2013 (which is considerably later than other property types) with an average rate of $27.94 per square foot per year. After climbing about 2% in the first half of the year (reaching $28.55 per square foot per year), rental rates saw a slight decrease (less than 1%) in Q3 2014.

Completions and Net Absorption

In addition to the change in the San Diego Office vacancy rate, overall completions and net absorption figures were reviewed. The following data is from CoStar Group, compiled by Integra Realty Resources – San Diego.

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So far this year, no medical office completions have occurred, and the past three years do not indicate any noticeable trends. Absorption was fairly consistent over the past years with positive absorption in the 200,000+ range. However, in 2014 there is negative absorption of 31,470 square feet.

Summary

Based on market data, medical office market conditions have not improved as significantly as with other property types, as evidenced by increasing vacancy rates, decreasing rental rates, a lack of newly completed office product, and negative absorption.

That said, the shifts in these market indicators are nominal and could change significantly towards the end of the year. Additionally, niche markets such as biotech space continue to thrive in San Diego County.  Also, desirable submarkets such as UTC and Sorrento Valley continue to be in high demand. Although the medical office market is not as strong as other property types, it is forecasted that market conditions will continue to stabilize.

Poway Medical Office Condominium Appraisal

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Integra Realty Resources – San Diego has completed a commercial appraisal of a medical office property located in Poway in San Diego County. The subject property consists of several non-contiguous medical office condominiums located in the same building. The units total approximately 15,000 square feet, with suite sizes ranging from about 1,100 square feet to 4,700 square feet. The building is located on a 3.59 acre site. The units are 100% leased to two tenants, one occupying four units and the other occupying a single unit. The purpose of this commercial valuation was for loan underwriting purposes for a local credit union lender.

Medical Office Appraisal in La Jolla, San Diego

Medical-Office-Appraisal-La-Jolla-San-DiegoIRR San Diego has completed a commercial appraisal of a medical office property located in La Jolla, San Diego. The building, located along Ivanhoe St., is approximately 3,400 square feet in size and is located on a 0.08 acre site. The property is 100% occupied by an owner-user. The purpose of this commercial valuation was for asset valuation purposes for a lender.

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