Investment activity intensifies in the SoCal medical practice market
Medical practices have been one of the best performing asset classes during the recent market dislocation caused by the pandemic. In Southern California, strong fundamentals attracted investors, and by the end of the year, Los Angeles and Orange County saw major medical practice contracts.
In Los Angeles, 4,343 Lankershim in North Hollywood and 150 N. Robertsons in Beverly Hills exchanged hands in the fourth quarter at record high rates for Los Angeles-area medical practices, according to JLL data. Investment activity was sustained throughout the year. Other major deals include LaSalle Investment Management purchase of a 49,721 square foot Class A medical office building in Beverly Hills, Calif., for $74.4 million from UBS Realty Investors and Meridian’s acquisition of the Beverly Hills Medical Plaza, a three-story, 67,510 square foot Class A medical practice 88% occupancy, for $81.5 million in partnership with an anonymous institutional investor. In Orange County, the Newport Lido Medical Center trophy asset in Newport Beach was sold in one of the largest medical practice transactions in industry history.
It’s no surprise that investment capital is bullish on the doctor’s office space. Both counties have strong fundamentals. In Los Angeles, the vacancy rate fell below 10% for the first time since the pandemic began, and in Orange County, the vacancy rate is below 9%. Limited availability put upward pressure on rental rates, especially in Orange County, where rates hit $3.11 per square foot, up $0.11 since the start of the year, although rents have yet to surpass the 2020 high of $3.20 a foot. . In Los Angeles, rents remained high at $3.50 per square foot, above pre-pandemic rates. However, owners are offering increased concessions, although JLL experts expect concessions to decrease this year.
Despite the increase in rents, net absorption was positive in both markets. In Los Angeles County, net absorption totaled over 102,000 square feet, helping to drive strong occupancy for the year. In Orange County, the market had over 50,000 square feet of net absorption.
Medical offices have been in such demand with tenants and investment capital that there is a tendency to transform an outdated office properties in medical office space. Although costly, Jon Boyajian, director of Echo Real Estate Capital, has seen office owners repackaging properties as medical practice conversion opportunities for faster sale.