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2Q16 Hospital & On-Campus Medical Office Summary

At mid-year 2016 the total occupancy for on-campus medical office space in suburban Chicago remained flat from the start of the year. Activity and overall deal velocity has remained strong, but the vast majority of Q1 and Q2 deals have not resulted in any positive space absorption. This is due to several ongoing trends:

  • “Retail” consolidations of formerly separate offices, usually occurring after multiple independent practices become employed by the same hospital system.
  • General space reductions, usually by 5-15% of the total square footage. This stems from medical tenants no longer needing to house medical records on-site, a reduced demand for large private physician offices, and medical equipment shrinking in size due to technological advancements.

There is still ongoing demand for regional hospital systems to continue to merge operations (Northshore and Advocate are the most recent), that these trends in health care real estate will likely continue, resulting in flat absorption rates for vacant space.