San Antonio is feeling the impact of medical-building boom
Posted Tuesday, September 04, 2007
There is a medical-office building boom under way in the United States.
And that trend is very apparent in San Antonio, where hospital systems and other health care organizations are trying to keep pace with an unprecedented amount of growth in this city.
San Antonio firm Huffman Developments is among those increasing its presence in the local medical office industry. The company recently started work on the third phase of its Villages on Sonterra project.
The six-building addition will bring another 80,000 square feet of medical office space to the master-planned community of Stone Oak. And dirt is already turning on the first of the six new buildings -- a two-story structure of about 24,000 square feet, says Jim Ploetz, who heads up marketing for Huffman.
Phase three joins an existing 75,000 square feet of medical office space -- most of it already occupied -- at the Villages on Sonterra, Ploetz says. The latest expansion for this North Central San Antonio project will bring the office park to a grand total of 155,000 square feet.
This latest development further reinforces the findings of a new national report published by Marcus & Millichap Real Estate Investment Services. That report indicates that developers are expected to add 14.5 million square feet of new medical office space this year across the country.
That construction activity is being supported, according to the report, by "strong tenant demand generated by the health care needs of the nation's aging population."
Hot spot
According to Marcus & Millichap, nearly half of the new medical office space expected to be added in 2007 (6.9 million square feet) will be built in the Southwest and Midwest.
San Antonio is certainly drawing its share of interest from developers looking to construct more medical office space in the nation's seventh largest city. And that activity is getting a serious boost from a trio of local hospital systems.
In June, Baptist Health System opened the first medical office building in the Westover Hills area on the city's far West Side. The Westover Baptist Medical Office Building adds nearly 57,000 square feet of new medical office space to the San Antonio landscape.
Christus Santa Rosa Health Care is continuing work on its own medical campus in Westover Hills. That project includes a new 60,000-square-foot medical office building.
A short drive up Interstate 10, Methodist Healthcare has recently constructed the 69,000-square-foot Methodist Boerne Medical Center.
Brad Bailey, San Antonio regional manager for Marcus & Millichap, says the Alamo City is definitely one of the hot spots for medical office development.
"One of the things we are seeing in San Antonio is that the infrastructure is catching up with the growth in this city," Bailey explains.
A number of other players, including Huffman, are developing medical office buildings in the Alamo City.
The Villages on Sonterra development is one of two projects spearheaded by Steve Huffman. The second, Villages on Huebner, presently consists of roughly 40,000 square feet of medical office space, spread out over five buildings on the Northwest Side. Huffman plans to pull the trigger on two more buildings totaling some 13,000 additional square feet in the Huebner complex in the fourth quarter of this year.
More to come
The pace is expected to continue.
In July, the Business Journal reported on plans for a pair of major medical office developments for the San Antonio area.
Cary, N.C.-based Oaks Development Group is planning to build a 105,000-square-foot medical office building near the South Texas Medical Center.
On the far Northeast Side, in the neighboring community of Live Oak, REOC Development LLC expects to break ground soon on some 170,000 square feet of medical office space. The lion's share of that space will be spread across a pair of 60,000-square-foot buildings.
Huffman also has a smaller medical office campus planned in the Live Oak area. The first of two new 6,000-square-foot buildings will come online early next year, and that building has already been purchased by a local doctor, Ploetz says.
In the case of many of these properties, proximity to a major hospital facility is critical, notes Carl Bohn, a vice president with San Antonio-based NAI REOC Partners and an expert in the local medical real estate game.
He says it was "a lack of new (medical office) space and the continued expansion of Northeast Methodist Hospital" that drove REOC Development to pursue the Live Oak project.
Bohn adds, "Medical office buildings follow the clinical development -- like shoe stores follow H-E-B (grocery stores)."
Forecast
According to a recent report by NAI REOC, San Antonio currently boasts more than 5.3 million square feet of medical office space. The overall occupancy rate for these properties now stands at 85.3 percent.
Marcus & Millichap's Ray Schaffer says the national interest in San Antonio will continue, as will the demand for more space. He does not believe supply will outpace demand anytime soon.
"I don't believe there is going to be any over-supply (of medical office space) in San Antonio," Schaffer says. "As fast as these things are getting built, they are getting leased."
Schaffer adds, "The forecast for San Antonio is extremely positive."
The souring state of the national economy could slow down building activity in a number of markets across the United States. But Bailey doesn't expect such a down-shift in San Antonio in the foreseeable future.
"As long as the job growth continues and the city continues to expand, you will see this (building activity) continue," he says.
In fact, observers note that the growth of the health care and biosciences industry in San Antonio makes the medical office arena more attractive to commercial developers moving forward.
Medical office market
• U.S. Trend: As of second quarter 2007, the medical office market was posting a vacancy rate of 9.6 percent; the average rental rate stood at $23.36 per square foot • Southwest/Mountain region (which includes San Antonio): As of second-quarter 2007, the vacancy rate for these properties was 11.7 percent; the average rental rate stood at $22.18 per square foot
• Local highlights: As of second-quarter 2007, San Antonio's medical office market recorded a vacancy rate of 14.7 percent; rents in the local market ranged from $13.50 to $30 per square foot Sources: Marcus & Millichap Healthcare Real Estate Group; and NAI REOC Partners
San Antonio Business Journal - August 24, 2007by W. Scott Bailey and Tricia Lynn Silva