Institutional Class A Fuels San Diego's Medical Outpatient Building Market
San Diego's medical outpatient building sector remains one of the most stable and resilient asset classes in the region. Market fundamentals are solid, with asking rents up 1.4% year-over-year, with direct vacancy declining by 30 basis points to 6.4%, in line with the 10-year historical average, according to a new report on Q1 2026 from JLL.
"Tenants continue to gravitate toward Class A, institutionally owned buildings where landlords can fund the tenant improvement packages that offset today's elevated construction costs," Ben Schiesl, JLL vice president, told GlobeSt.com.
Owner-user activity remains the dominant force shaping the investment landscape in San Diego, with Sharp HealthCare alone accounting for over 300,000 square feet through this strategy across the metro in the past five years, he said.
"We are also watching the conversion trend closely as investors reposition traditional office and lab buildings as medical outpatient buildings," Schiesl said. "Investors assuming that medical zoning and adequate parking alone justify a $600+ per-square-foot price tag will find the market more discerning than expected.
"Most of these conversions across the county are delivering second-generation office space, not built-out medical product, and that distinction matters enormously to physician buyers and tenants. This creates a clear distinction between what we call passive and active converters."
He added that passive converters are sitting on office space or shell space with the right zoning and parking ratios, waiting for a medical user to come in and fund the buildout themselves.
"In today's environment of elevated construction costs, labor, and materials, that is a significant ask," Schiesl said.
"Active converters, by contrast, are either speculatively building out clinical infrastructure or, at a minimum, creating the mechanical, plumbing, and power headstarts that give users a materially faster path to occupancy. The active converters will see real demand; the passive ones will be left wondering where all the medical tenants they read about went."
San Diego's suburban submarkets are outperforming, fueled by the shift to outpatient care, according to the report.
Off-campus medical buildings remain tight, with 5.9% vacancy and rising rents. Tenants seeking expansion continue to favor Class A medical space owned by institutional landlords. The region's healthcare workforce is also expanding rapidly, adding 12,500 jobs year-over-year, outpacing national growth and reinforcing demand for modern outpatient facilities.
Source: GlobeSt/ALM