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Posted: Monday, January 21, 2008

Medical Office Submarkets Performing Well in the Valley Despite Hospital Difficulties

Historically the San Fernando Valley has been a very stable medical office building(MOB)market. EvenHillary Clinton’s healthcare reformattempt and theNorthridge earthquake in 1994 had little long termimpact to the traditionally lowvacancy rates. Given that themajority of SFV MOBs are clustered around the hospitals, themicromarkets of those hospital campuses are directly affected by the success of the adjacent hospital “strategic partner”. While the SFV has seen a fewhospitals close their doors in recent years, other hospitals have picked up the slackwith improved facilities and increased their bottom- line. Overallmedical office buildings have performedwell in the past 12months, the results of which are decreased overall vacancy and increasing rental rates.

West Hills Hospital has announced a 47,000SF - $40M expansion including a new Emergency Department, Critical Care Unit and Outpatient Services Facility. The MOBs in this submarket are newer construction with stable tenancies and have been well maintained. They have attracted new medical facilities and practices, which has bolstered the medical community.

TheWoodland Hills submarket has bounced as any of the doctors/tenants in these MOBs stayed in the community, while joining the staff at other west valley hospitals to utilize necessary inpatient services for their patients.

The Encino/Tarzana submarket has tightened due to a lack of new supply and growing patient needs from aging Baby Boomers.

Encino/Tarzana Regional Medical Center has very high bed utilization and remains one of the premier MOB submarkets in the SFV. A new MOB is being planned for that campus in the coming months.

Northridge Medical Center has benefited from the closure of Granada Hills Community Hospital and the submarket MOBs have all seen stable occupancy and moderately increasing rents. Pacific Medical Buildings has plans to add another MOB to the campus.

Granada/Mission Hills has consolidated around the Mission Hills Hospital since the closure of Granada Hills Community Hospital. Despite the closure, this has remained a tight MOB submarket, with stable rents, in which one MOB is currently for sale.

The Van Nuys MOB submarket is anchored by Valley Presbyterian Hospital, with a newly constructed modern hospital facility. There are many off campus buildings that negatively skew the rent rate shown above. The submarket MOBs on and off campus have added new medical practices and a new 75,000SF MOB is planned on campus by Landmark Healthcare Facilities available in mid 2009.

The Sherman Oaks medical community is adjusting to the acquisition of Sherman Oaks Community Hospital by Prime Healthcare Services controlled by Dr. Prem Reddy. The new scaled back hospital operations have caused some dislocation of medical practices, but others seem to be moving in to the submarket to fill the void. Rental rates in this submarket have begun to stabilize and then should trend upward.

St. Joseph’s Medical Center is the hub of the Burbank medical community and the MOB submarket has seen new on campus buildings come on line, built by Pacific Medical Building. The rental rates in this submarket have also remained strong as the new supply of medical office space has been absorbed and the medical community has expanded.

The year in review shows that even with hospital sales and closures in recent years as well as increasing pressure on hospitals and medical practices to control healthcare costs, the hospital administrations and doctors have shown a resiliency and desire for business expansion as opportunities to serve the communities of the SFV present themselves.

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