Healthcare Has Healthy Impact on San Diego Real Estate

January 29, 2018

Healthcare and related industries continue to exert growing impact on demand for commercial real estate in San Diego County.

Among the latest examples is developer Sudberry Properties’ ground-breaking for a second 158,000-square-foot office building at the Scripps Ranch headquarters of client MedImpact Healthcare Systems Inc., a major provider of pharmacy benefit management services.

Also, brokers at Colliers International announced that Ra Medical Systems, Inc., maker of lasers and catheters used to treat cardiovascular and dermatological diseases, has signed a 10-year, $4.4 million lease for a new 32,000-square-foot headquarters in Carlsbad.

The message of even greater long-term effects on commercial real estate was driven home by CBRE Group, Inc. researcher Spencer Levy at a recent trends presentation by the San Diego chapter of Commercial Real Estate Women (CREW).

Levy, CBRE’s Americas Head of Research, said San Diego and other U.S. markets will see escalating demand for healthcare and related services over the next 20 years, as the number of people over the age of 65 doubles. Studies have indicated that three-quarters of a lifetime’s spending on healthcare takes place after age 65.

“Most of it (healthcare services) is still going to be provided locally,” Levy said. “You’re seeing more and more retail space being occupied by healthcare providers.”

It’s become “a major trend” in the commercial real estate business, Levy said, noting that healthcare was the biggest user of new space during 2017 in major markets such as New York City.

San Diego’s growing industries tied to healthcare – including life sciences and medical devices – have been expanding real estate footprints for the past several years. The San Diego Regional Economic Development Corp. reports, for instance, that the medical device industry accounts for 6 percent of all employment in the Carlsbad area, or around 4,000 jobs.

National University reported in 2014 that the overall healthcare sector was growing faster than the rest of the San Diego regional economy, directly employing more than 121,000 as of 2012.

Big new San Diego projects include the second six-story MedImpact building, with an adjacent four-level parking structure, slated for completion in December 2018 by local developer Sudberry Properties at 10159 Scripps Gateway Ct.

Sudberry completed the original MedImpact headquarters building next-door in 2010, and the two buildings will be connected by a pedestrian bridge. The new office building, designed by Hanna Gabriel Wells architects and being built by Swinerton Builders, will include a large outdoor courtyard for casual meetings, social gatherings and exercise.

Sudberry and MedImpact officials declined to disclose the project cost for the new facilities. The privately held MedImpact is among the nation’s largest providers of pharmacy benefit management services, with rising demand from clients including company health plans, self-funded employers and government entities.

“MedImpact has aggressive growth goals, and this expansion will enable us to better accommodate that growth,” said Greg Watanabe, president and CEO of MedImpact. “This new addition to our corporate headquarters will also enable us to streamline efficiencies and increase collaboration by relocating staff from multiple buildings to a more centralized location.”

In Carlsbad, Colliers brokers said device maker Ra Medical Systems has begun operating its research and development, production, sales and marketing functions out of its new space in a two-story building at 2070 Las Palmas Dr. Ra now occupies about 12,000 square feet of creative office space and 20,000 square feet of R&D space, after relocating from another Carlsbad campus that totaled 22,000 square feet in multiple smaller buildings.

“Ra Medical Systems has experienced incredible growth over the past year,” said the company’s CEO, Dean Irwin. “Our new space provides the ability to expand our team under one roof and support development of our innovative medical systems while still remaining in Carlsbad.”

Tucker Hohenstein and Mike Erwin of Colliers International represented the Carlsbad landlord, Lloyd Wells Gift Trust, in the recent lease transaction. Rick Heymann of Noteworthy Advisors, Inc. represented Ra Medical Systems.

Local brokers also point to the rising impact of consumer demand for healthcare services on San Diego County’s medical offices, which house doctors, dentists and other care providers.

While fourth-quarter 2017 data was not yet available, JLL reported that the region’s medical office vacancy rate stood at 6.8 percent at the end of the third quarter – well down from the peak 13.6 percent seen in 2009 – as rents rose 2.6 percent over the prior year, to $3.20 per square foot. Amid limited new construction, brokers said the biggest space absorption has recently been seen in submarkets including Oceanside / Vista, La Jolla / UTC and Sorrento Mesa.

In its own third-quarter report, Cushman & Wakefield pointed to 2017 transactions including Anchor Health Properties’ acquisition of large medical office complexes in San Diego, Escondido and La Mesa. Those acquisitions, made in partnership with an institutional equity partner, made Anchor Health the largest non-health-system owner of medical office buildings in the San Diego metro area.

Cushman brokers said submarkets recently seeing big medical office rent increases include East County, the I-15 Corridor and San Diego’s Mid-City area. The overall region, however, is seeing slowing space absorption and leasing activity compared with 2015 and 2016, due in part to a lack of quality vacant spaces remaining in most areas.


This article was published on CoStar and was written by Lou Hirsh.