Phoenix is an investor favorite for sure. While nationwide roughly 65% of medical office space is user owned, in Phoenix only 30% is user owned. A whopping 70% of inventory in the market is owned by investors. A significant driver of this is how incredibly fast Phoenix is growing. In 2019 Phoenix edged out Boston as the 10th largest metro area in the country. The market is 3rd for 10 year numeric growth and Maricopa county has been the fastest growing county in the entire US for 3 years running. Whew!
According to Trisha Talbot, Managing Director at Newmark Knight Frank in Arizona, “Phoenix’s phenomenal rate of growth is a tremendous factor in the resilience of medical office assets in the market. The valley also has a significant 65 and over population that require additional healthcare spending on services and procedures.”
Developers and providers are very active in delivering the needed services and space to this growing population – Phoenix is 3rd only behind New York and Chicago for total medical office construction currently under way. These projects are either self developed by the provider or largely pre-leased when developed by a third party, so most of the deliveries tend to be absorbed upon opening.
It wouldn’t be fair to talk about any market without discussing the effects of the pandemic. In addition to the virtually nationwide shutdown in early spring, Phoenix had to deal with a significant spike in COVID cases in June. Since then cases have come down and seem to remain under control. Throughout all of this, occupancy has remained steady. Phoenix is exhibiting this stability in sync with the national trends and can be attributed to lack of turnover and systems even taking on more space. In addition to new space being absorbed, providers are almost all renewing their leases. In fact, nationwide in the Revista Fundamentals report, tenant retention is at an all time high in the second quarter as far back as the report tracks ~2009.
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