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San Diego’s North County Captures Growing Medical Office Space Demand

Planned New Kaiser Hospital Points to Expansions by Healthcare Providers

By Lou Hirsh CoStar News December 14, 2020 | 2:24 P.M.

Healthcare provider Kaiser Permanente has broken ground on a $400 million hospital in San Marcos, California, an indicator of rising medical office space demand in the North County and other regions of San Diego.

Medical office asking rents throughout the San Diego region are up 5.2% from a year ago amid dropping vacancies and previously limited new construction, according to a third-quarter report on the sector from brokerage JLL.

“Providers are still licking their wounds but generally getting back to pre-COVID plans and eyeing growth in 2021,” JLL researchers said, noting that only three San Diego-area medical office spaces of more than 5,000 square feet hit the market in the third quarter of 2020. There are only eight new properties with availability of over 3,000 square feet, as the San Diego regional medical office vacancy rate stands at a historically low 6.1%

At a groundbreaking ceremony in San Marcos, officials of Oakland, California-based Kaiser Permanente said the seven-story, 206-bed hospital is set for a fall 2023 opening adjacent to the provider’s existing medical offices at 400 Craven Road. It is expected to employ more than 1,000 and is being built to serve Kaiser’s growing North County customer base, now numbering 180,000 of its total 630,000 health plan members in the San Diego region.

Medical offices have typically clustered close to hospitals in the San Diego region, and much of the new hospital development of recent years has been focused in underserved but growing cities in its North County area.

For instance, rival San Diego-based provider Scripps Health recently opened a 93-room, $85 million outpatient center in Oceanside, its largest such facility in North County, and also has plans to open a 14,000-square-foot primary care facility next year in San Marcos. JLL researchers said San Diego regional medical office vacancy could drop to 5% or lower over the next six to 12 months, after the region posted more than 68,000 square feet of positive net absorption during the third quarter. That was due in part to 27,000 square feet of a new 80,000-square-foot medical office building getting preleased near Palomar Medical Center in the North County city of Escondido.

Also during the third quarter, Kaiser Permanente fully occupied its own new medical office building spanning 90,000 square feet in San Diego’s Kearny Mesa neighborhood.

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