Healthcare sector helps drive the office market

October 27, 2003 - The Las Vegas office market is showing signs of recovery due to a strong demand from the healthcare profession. Since the first quarter of 2002, the office market has hovered around an 11 percent vacancy with no significant, consistent movement in a positive or negative direction, reports Applied Analysis, a Las Vegas-based economic research firm. However, the third quarter 2003 vacancy rates are now at 10.8 percent valleywide, a 0.5 percent drop from the previous quarter, a modest but meaningful sign of improvement.

"We are seeing a lot of medical office buildings, whether it's a small condo for sale or a leased property," says Taber Thill, a broker with Colliers International. "It seems like the retirees are moving into town and staying, and there has been a lot of healthcare activity with companies coming in from out of state."

Seniors now represent 11 percent of Clark County's total population, reports the U.S. Census Bureau. From 1995 to 2000, Nevada was the nation's leader in migration of people aged 65 years and older, experiencing a 114.2 percent growth, or 41,857 new senior residents.

As a result, several new hospitals have emerged, each vying to provide seniors with healthcare service like the $70 million, 176-room Spring Valley Hospital, which opened in southwest Las Vegas Valley on October 2. Other new facilities include the $140 million, 130-bed Southern Hills Hospital, opening in February, followed by the $180 million, 212-bed Meadows Hospital in North Las Vegas in 2005, and St. Rose Dominican's $145 million, 140-bed San Martin Campus in 2006.

And with the new hospitals come new medical offices. There was 407,000 square feet of net absorption for the third quarter, nearly six times more than a year ago. There was also 283,000 square feet of new inventory added, and another 1 million square feet under construction.

Many hospital operators or their subsidiaries build connecting office space themselves. Such facilities are often linked directly to their facility, capitalizing on location and convenience.

Universal Health Services, the parent company of Valley Health Systems, for example, is building a $5 million, 60,000-square-foot medical office building north of the newly opened Spring Valley Hospital. HCA subsidiary, MedCap Properties, is similarly constructing a $6.7 million, 100,000-square-foot office building south of Southern Hills Hospital.

"New families coming into town with children are also helping to drive the need for healthcare related office use," says David Scherer, senior vice president at Grubb & Ellis. "It's not only doctors, but medical suppliers, equipment providers and insurance companies that are occupying office space."

In 2001, Clark County had 110,658 children under the age of five, and 269,891 kids from ages five to 17, reports the Center for Business and Economic Research at UNLV. From 2000 to 2001, 7.5 percent of babies born had a low birthweight and the average teen birthrate was 35.5 per 1,000 females.

"As a hospital plants itself, everything grows around it," says Bob Wallace, vice-president of Kitchell Contractors, a local hospital builder. "Southern Nevada has one of the lowest bed-count ratios per capita in the country. So there is still plenty of room to grow in the healthcare area."

Most developers are quick to recognize the value of being near a hospital facility. Centra Properties, for instance, is building a $55 million, 300,000-square-foot Class "A" office complex, called "Centra Point," at the 215 Beltway and Durango Drive. The six building, 21-acre master-planned complex is located within a one-mile radius of the Spring Valley Hospital and the future St. Rose Dominican San Martin Campus in the southwest.

Mitch Orgon is developing a 130,000-square-foot office Sierra Pavilion complex directly across from St. Rose Dominican Hospital's Siena Campus in Henderson, as is Plise Companies, which is also building a 104,000-square-foot office park next to the campus. Longford Properties is building a four-story, 130,000-square-foot medical center at Buffalo Drive and Summerlin Parkway, near the Summerlin Hospital, with Nevada Heart and Vascular as its major tenant.

"The real estate market continues to strengthen as a whole, with the office sector reporting marked improvement from the last several quarters," says Jason Salmon, director of real estate services for Applied Analysis. "The immediate and long-term prospects are supported by improved stability in the professional and health services sector."

There is roughly 4.2 million square feet of office space planned for future development. The improved job market and economy are aiding the overall demand for office space. The Las Vegas Valley added an estimated 19,300 new jobs in the past 12 months, reports the Nevada department of Employment, Training and Rehabilitation.

"We anticipate steady growth of the office market into 2004," said Brian Gordon, a principal with Applied Analysis. "Continued growth in employment, decreasing unemployment and population growth are positive signs."

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Article Copyright ©: T. Illia, Las Vegas Business Press