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Planned Developments on First Hill Not Expected to Alter Drum-tight Medical Office Market

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SEA_PP_First_Hill_Media.jpgBy Kristin Bentley

First Hill, Seattle’s premier hospital and medical services hub known as “Pill Hill”, is poised to experience substantial growth by 2019 with an additional 732,000 square feet of medical office space. However, observers expect the new space will not change the dynamics of the drum-tight metro medical space market.

Swedish Medical Center, the largest nonprofit health provider in the Seattle area, went before the city council less than two months ago and has announced its First Hill main campus expansion, which will add another 599,000 square feet to its campus. It intends to demolish the Northwest Tower, Block 95, and 821 Boylston, and replace them with two 17-story towers for a total of 982,000 square feet.

“This was a rare opportunity to acquire a landmark medical office project in one of the most desirable medical office markets in the U.S.”

According to Swedish, the new Northwest Tower will be the most significant complex project it has undertaken in the past several decades, and will involve replacement of many of the most complicated and systems-intensive services on the campus.

The new tower will be used for a variety of uses including emergency department, critical care units, surgical suites, and patient rooms. The project is working its way through design review with the city and has an estimated delivery date of fall 2019.

Unfortunately for those looking for available medical office space, the expansion will be used solely for Swedish functions, according to Swedish External Communications Manager Karrie Spitzer. “Other than one ground floor retail space for a cafe, Swedish is not planning any leasable space in our project.”

Another project in the works is a 133,000 square foot state-of-the-art Class A medical office space by Nashville-based Healthcare Realty Trust Inc., a publicly-traded Real Estate Investment Trust (REIT) that owns 14.3 million square feet across the U.S., will be located adjacent to their First Hill Medical Building.

Its targeted delivery date is mid-2018, according to a CBRE 2015 Fourth Quarter Medical Office Report. Whether any of this additional space will be available is unknown at this time. Healthcare Realty was not available for comment.

First Hill’s medical office direct vacancy rate currently sits at 1.7 percent, the lowest in the Puget Sound region, and has an average on-campus asking rate of $32.61 per square foot, according to the CBRE report. In 2015, the national vacancy rate was 11.6 percent with an average asking rate of $24.71 per square foot, according to last year’s Colliers National Medical Office Report.

In January, First Hill set a Seattle record for the largest transaction of a commercial office building with the sale of the First Hill Medical Pavilion for $185.7 million, or $825 per square foot.

The buyer of record was TC Columbia Associates, LLC, a Trammell Crow-sponsored limited partnership managed by Chicago-based Heitman and Denver-based NexCore Group, bought the recently redeveloped 225,000 square foot building from a joint adventure, Trammell Crow Company (TCC) and Washington Capital Management (WCM). CBRE did not disclose the buyer, other than state that it was an institutional investor.

“This was a rare opportunity to acquire a landmark medical office project in one of the most desirable medical office markets in the U.S.,” said Chris Bodnar, an executive vice president for CBRE’s Healthcare Capital Markets Group, in a prepared statement.

A little over three years ago TCC and WCM acquired the property located at 1124 Columbia Street for $42.6 million with the objective of transforming it into a state-of-the-art medical office building. The project ended up expanding to include an additional 65,000 square feet of office space on six floors and a 415-stall subterranean parking garage.

Renovations to the building also included a two-story main lobby and a new infrastructure. The building is currently leased to Swedish Health Services, Seattle Medical Associates, CellNetix and Theraclone, with zero vacancy.