News

Arizona Attracting Attention

March 21st, 2014

The recovery in Arizona, especially the metro Phoenix market, has attracted the attention of Woodside Health. Hard hit during the recession, the area likely is recovering and is again showing opportunities for growth. Arguably overbuilt prior to the recession, there is little new medical office building construction and therefore an opportunity for existing buildings to increase their occupancy rate. Projects may be a bit more challenging to underwrite and finance, but this may be the right time to acquire them.

"As you tour markets around Phoenix, there's still plenty of vacancy and downward pressure on lease rates. We've seen some properties where ten year leases that had annual rate increases are renewed starting back at the lease rate from 10 years ago," noted Ben Sheridan, Woodside Health Principal. "Buying these properties based on today's lease rates may work out well for us as it appears they have hit bottom and may have above average lease rate increases in the near future," he added.

Phoenix job growth has rebounded, with the 2.7% increase in 2013 scoring it as the #7 metro area in the nation. Professor Lee McPheters from Arizona State University adds the biggest surprise may be what drove 2013 growth in the Phoenix area, which was hit very hard by the recession. Phoenix led all large metro areas in information-sector and finance job-growth rates. In fact, Phoenix created the same number of information jobs in 2013 as the San Francisco area (2,000). Phoenix was also first nationwide in both the growth-rate percentage (5.6 percent) and absolute number of finance jobs added (8,400). "Metro Phoenix economic-development efforts seem to be paying off, since both of these industries pay nationally competitive salaries and attract college-educated workers," says McPheters. "This growth is happening in Phoenix more rapidly than anywhere else."

At the end of 2013 Metro Phoenix's population was about 4.3 million people. Projections for 2017 are growth to 4.9 million people. Growth like this can fuel demand for additional medical office building use. In 2013 there was 1.3 million square feet of net absorption in metro Phoenix office space, and forecasts by Cassidy Turley suggest the net absorption will rise to 2.0 million feet in 2014. Average asking rental rates have increased by 4.5%.

"This may be the right time to enter the Phoenix market," concluded Sheridan. "We were close to acquiring a property in 2013 and are working on some others that could close in mid-2014."

 

Back to news

Sign up for updates