As new construction spaces with higher rental rates continue to get absorbed, the average rental rate for Orange County medical space has come down from fourth quarter 2020 highs. Nonetheless, the current rate of $3.09 full-service gross represents nearly a 5 percent increase from the pre-pandemic high, according to JLL’s recent Orange County medical office market report.

Orange County has robust growth in new development, with 1.6 million square feet of underway or planned medical office and hospital construction. The new development will impact rates in fourth quarter 2021 and into 2022, however, demand for medical office space will remain strong as these projects are on average 98 percent pre-leased, according to JLL’s report.

“OC is in a rare situation with two major hospital systems in the process of building two new acute care facilities. With these new developments occurring in Irvine, the center of gravity of the medical office community is shifting to be more centralized in OC. This is positive growth for Orange County,” says Kellie Hill, JLL vice president. “This impacts both new development of MOB as well as the repositioning of both traditional office buildings to be a combined medical office and retail to medical office.”

In second quarter, Hoag purchased the ground lease of its Hoag Irvine hospital from Healthpeak. Hill says this was an important acquisition as it gives Hoag additional security for its acute care facility expansion in Irvine.

“Irvine continues to be the darling of the medical office submarkets with an average rental rate of $4.02 FSG and 4.5 percent total vacancy,” Hill says. “South County is the outlier on the MOB absorption trend, with Mission Viejo, Laguna Hills, Laguna Beach and San Clemente all with double-digit vacancy rates.”