REAL ESTATE NEWS

For medical outpatient buildings in San Diego, the real story isn't flight-to-quality – it's a flight-to-built-out space, according to JLL's 2026 National Medical Outpatient Building Report.

For the first time in San Diego County history, Class A medical office asking rents surpassed $5 per square foot, closing Q4 2025 at $5.07 FSG.

"But the milestone isn't just about building quality," Ben Schiesl, JLL's vice president in San Diego, told GlobeSt.com.

"It reflects tenants in the 1,800 to 4,000-square-foot range competing for move-in-ready clinical suites. With construction costs elevated and permitting timelines stretched, owners who can deliver turnkey space or fund meaningful tenant improvement allowances are capturing demand."

However, limited inventory remains a problem in the market — particularly among Class B and C assets. This is not due to building quality alone, but because of a lack of investment at the suite level, according to Schiesl.

"New supply is constrained locally and nationally, and what's being built isn't available anyway," he said.

San Diego has just 156,416 square feet under construction, representing 1.1% of existing inventory, mirroring the national average for medical outpatient buildings (MOBs). Nationally, construction starts are still down nearly 30% from the 2019 peak, meaning the entire sector is running lean on new development.

"But in San Diego, the pipeline provides even less relief than the numbers suggest," Schiesl said.

"The majority of new construction is already pre-leased, doing nothing to ease vacancy pressure for tenants actively searching for space."

The "real squeeze," he said, is most acute in high-growth submarkets like Escondido/San Marcos, where vacancy has tightened to 3.6% and Kearny Mesa, down to 4.5%, representing "corridors where new supply isn't coming and what little is being built is already spoken for."

"Rising rents are catching renewing tenants off guard," Schiesl warned. "Nationally, new construction is leasing at nearly twice in-place rents, and while San Diego's spread isn't that dramatic, the gap is real and widening."

With Class A asking rents now above $5 per square foot and overall market rents up 2.1% year-over-year, medical groups approaching lease renewals should expect meaningful rent resets.

"They will also increasingly find themselves negotiating with sophisticated, institutional landlords rather than regional owners, making expert tenant representation more important than ever," he said.

Consolidation is reshaping who's at the table and raising the stakes for site selection.

Health systems now account for 46% of all medical outpatient leasing nationally and private equity-backed medical groups are an increasingly significant force, rolling up independent practices across high-growth specialties such as behavioral health, physical therapy and orthopedics.

"For local, independent medical groups, that means fewer options, more sophisticated counterparties, and a greater need for specialized counsel that understands both the healthcare and real estate sides of the equation," according to Schiesl.

Source: GlobeSt/ALM