Chicago is the nation’s hottest medical office market

Chicago saw almost 1M sf of positive net absorption in the past year

Dec.December 16, 2019 03:00 PM
(Credit: iStock)

(Credit: iStock)

Someone call a broker!

Chicago has significantly outpaced other major U.S. cities for net absorption and deliveries of medical office product, with nearly 1 million square feet of positive net absorption over the past year ending in Q2 2019, according to a new report from CBRE.

Chicago tallied 915,000 square feet of positive net absorption, compared with Atlanta, which came in second at 557,000 square feet.

This demand has led to an increase in product, with Chicago also way ahead of other cities in terms of completions, with nearly 750,000 square feet in the same time period. Despite the amount of new product, the demand actually drove Chicago’s vacancy rate down 1.3 percent, to 10.1 percent.

“Chicago is one of the most competitive healthcare environments in the country and systems are continually trying to increase market share by further penetrating and expanding within the communities,” CBRE’s Jon Springer said in a statement. “This expansion activity has led to robust leasing and development of new Class A medical product. The localized strategies help the system deliver better care in the communities, while providing a better patient experience. This activity should continue for the foreseeable future.”

Compared to conventional office, high investment volume levels and low capitalization rates have made medical offices a favorite among institutional investors. Other factors driving the popularity include a steady nationwide vacancy rate at 10.3 percent despite a 10-year high in construction completions in the second quarter, a sustained increase in average asking rents since 2013, and strong demand for healthcare services due to an aging population, the report found.

“There is a continued rush by capital to this property sector,” CBRE Americas research chief Ian Anderson said in the statement. “This is a generational, secular trend driving interest in this type of real estate. The median age of the American population is gradually increasing, and health care as an industry is moving more toward treatment at outpatient centers and medical offices than at hospitals.”

Transaction volume for medical office buildings has receded from its early-2018 peak, but it’s still 50 percent higher this year than before the recession.

CBRE defines medical offices as office buildings in which at least half of leasable space is occupied by medical uses, such as dental, surgical or special practitioners and services. It excludes medical stores, hospitals and long-term care facilities.

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Chicago’s ice-cold office market is finally heating up. But don’t get too excited