Report: Los Angeles Medical Office Continues to See Vacancies, Negative Net Absorption

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By Catherine Sweeney 

While the medical office sector has primarily been a bright spot in many office markets, a recent report from JLL is showing that even that sector is proving to have some challenges. According to JLL’s “LA Medical Office Overview” for the year’s first quarter, the market is showing more availability and increased negative net absorption. 

“An influx of vacant and available medical office space hit the Los Angeles market in 1Q23, leading to more than 100,000 square feet of negative absorption for the quarter. This drove the overall vacancy rate up by 70 basis points. Much of this newly available space is in the Los Angeles North and South Bay submarkets,” stated Bryan Lewitt, managing director for JLL’s Los Angeles office and co-author of the report. 

Overall, Los Angeles is home to approximately 25.7 million square feet of medical office space. The report showed that, of this space, 10.2 percent was vacant during the first quarter, and net absorption was recorded at negative 109,899 square feet. At the same time, JLL reported rental rates at $3.66 per square foot. 

However, some portions of Los Angeles’ medical office market performed better than others. For instance, while downtown Los Angeles saw a vacancy rate of more than 19 percent, Southeast Los Angeles recorded a 4.2 percent vacancy rate.

Comparatively, a first-quarter office market report from JLL shows that total vacancy across all office properties in Los Angeles has increased to 24.1 percent, with 5.89 million square feet of sublease vacancy. Direct asking rates remained similar at $3.88 per square foot during the first quarter of the year. 

“A factor contributing to the increased vacancy rate and negative absorption in LA is new competition from commercial office building landlords now offering their space as available for medical office. This potential trend of healthcare tenants vacating purpose-built medical buildings for general office space will be one to watch closely throughout 2023,” Lewitt states in the report. 

Sales volume for medical office properties in the first quarter of the year was down as well, and nationally, sales volume was the lowest it has been in approximately ten years. Not many medical office sales were recorded throughout Los Angeles during the first quarter. 

However, several medical office sales were recorded in Los Angeles over the course of the past year. 

According to previous reporting from The Registry, Agora Realty & Management recently acquired a 75,000-square-foot medical office building in Tarzana for $30 million, or about $400 per square foot. The property, Tarzana Medical Plaza, is located at 5525 Etiwanda Ave., and consists of a three-story building with tenants that include Providence Healthcare Systems, Cedars-Sinai Medical Care and Unilab Corporation. 

In another transaction that took place over the past year, LaSalle Investment Management paid $18.25 million, or about $922 per square foot for a medical office building in Los Angeles’ Eagle Rock neighborhood. The property is located at 2560 Colorado Blvd. and has been leased by Adventist Health Glendale since 2003. Eastern Real Estate LLC and Atlas Capital Group sold the property.