The dynamic landscape of the business world is often characterized by shifts and adaptations in response to emerging trends and technologies. One of the most remarkable changes in recent times has been the transformation of work models with the rise of distributed and hybrid work setups. In Portland, Oregon, this trend has significantly impacted the conventional office market, leading to growth in companies embracing flexible work arrangements. However, a striking contrast emerges when we delve into the medical office market in the same city. Medical practices are facing unique challenges that make the adoption of hybrid work schedules a complex endeavor.
As of the first half of 2023, the Portland medical office market is undergoing a phase of robust demand, despite the prevailing challenges. The vacancy rate stands at 4.9 percent, which is a figure that is around 30 basis points (bps) below the 10-year average for this market, according to a recent, CBRE Figures Medical Office report for the first half of 2023. This stability is noteworthy, given the disruptions experienced across various commercial real estate sectors due to macroeconomic uncertainties. Healthcare tenants within the medical office market have shown a strong commitment to long-term leases, suggesting faith in the sector’s resilience.
However, beneath this seemingly positive outlook lies a set of intricate challenges that medical practices must navigate when it comes to relocation. The decision to move a medical practice is no trivial matter, given the unique factors at play. One of the most glaring obstacles is the ongoing disruptions in the supply chain, which have escalated construction costs and prolonged timeframes for obtaining permits, the report states. For medical practices looking to relocate or set up new facilities, these costs can pose a considerable financial burden, potentially affecting their viability in the new location.
Furthermore, a key factor distinguishing medical practices from other businesses is their close tie to a specific location. Medical professionals often develop a patient base that relies on accessibility and familiarity with a particular place. This translates into a notable hesitancy among medical practices to move more than two miles away from their current location, according to CBRE. The risk of losing patients due to the inconvenience of a longer commute is a significant deterrent to relocation, making the decision to move an arduous one.
In terms of sales performance, the medical office market has experienced a shift in momentum during the first half of 2023. Sales volume has slowed considerably, recording just $16 million in transactions during this period, in stark contrast to the $91 million achieved in the first half of the previous year. This decline in sales volume likely reflects the challenges specific to this sector, coupled with broader economic and market uncertainties.
Recent sales include the Ninth Street Medical Plaza in Clark County, which was acquired for $6 million. Wilder Technologies paid $239 per square foot for this 25,463-square-foot property. The Rosewood Family Health Center, a 10,488-square-foot property in Outer Eastside, was sold to Mhaao Properties for $4 million, or $381 per square foot. In addition, J Square One purchased the 10,059-square-foot property at 6225-6245 SW Capitol Hwy in the Barbur Blvd/Capitol Hwy submarket for $3.35 million, or just under $333 per square foot.
While the vacancy rate has recently jumped after years of slow decline, so too has the average lease rate, which now hovers around $30 per square foot per year NNN. This figure, too, has been steadily increasing since 2020 when it bottomed out for a while at around $22.