Demand up for medical space

GLENDALE — At least 150,000 new square feet of high-quality medical office space is planned for Glendale as commercial property owners look to capitalize on higher rents in the squeezed medical office market.

Whereas the city’s general office vacancy rate is hovering at 13.8%, the vacancy rate for medical offices is probably closer to the countywide medical office vacancy rate of about 3%, said Michael Dettling, director of Ramsey-Shilling Healthcare Real Estate Group.

But while the supply of medical space may be short, demand is high, and that combination spells opportunity for developers and owners of existing commercial properties willing to improve their structures to accommodate medical uses, Dettling said.

The average asking price for general office space in Glendale last quarter was $2.89 per square foot, according to real estate firm Grubb & Ellis. But new medical office spaces in the city are likely to command between $3 and $6 per square foot, market watchers say.

New projects in the city include the 40,000-square-foot office building at 800 S. Central Ave., which will dedicate 30,000 square feet to medical uses and is due to open in July, said Dettling, who is heading up leasing for property owner Alber Karamanoukian.

Farther north at 3600 N. Verdugo Ave., the Ariane Medical Center — a 30,792-square-foot, three-story medical office building — is under construction and due to open in mid-2008, according to Ramsey Shilling Co.

Those buildings will join Bantry Holdings’ 27,000 square feet of medical space at 501 N. Orange St. in a single-story location due to open in May, said Jeff DuChateau, Bantry Holdings senior vice president.

About half of that space has already been leased to Catholic Healthcare West, and Bantry Holdings continues to negotiate potential deals for the rest of the newly improved offices, DuChateau said.

Bantry Holdings, which bought the property in 2005, initially planned to target retail or entertainment industry tenants, he said.

But those plans “didn’t exactly pan out,” he said. “The demand just wasn’t there, that became evident pretty quickly, but after studying the market, we determined the demand for good, quality medical office space is where it’s at.”

Another owner of a downtown office building, this one at 600 N. Brand Blvd., is looking to convert three of its seven floors for medical use, Dettling said.

Property owner TWS Realty, LLC, is looking to invest about $400,000 worth of interior improvements to convert 50,000 square feet of generic office space for medical use, Dettling said.

“The owner is willing to give most of that, if not all, to the right medical tenants so he can achieve a higher lease rate and achieve stable long-term credit tenants, with the downside of just having to come up with the money for the improvement for the suite,” Dettling said.

The imminent availability of medical office space comes at a time when two of the city’s three major hospitals, Glendale Memorial Hospital and Glendale Adventist Medical Center, are undergoing or just completed expansion projects of their own.

The fact that the city has three hospitals, including Verdugo Hills Hospital, is reason enough to attract more medical tenants, but those expansion projects could be part of what’s triggering the recent boom in medical office construction, said Phillip Lanzafame, director of the city’s Development Services.

“Anecdotally, that would be my assessment,” Lanzafame said. “Both of those regional medical centers are going through expansion projects and upgrading their facilities, so naturally that’s going to attract additional doctors and other medical office needs.”