Northern California Medical Office May Have Good Things Ahead

Developers continue to heed the call for for medical office facilities in the Sacramento metropolitan area. Construction is underway on a new ground-up medical office building at 8105 Saratoga Way, the mostly speculative class-A development owned by a medical group through KFG & FOUR Cs LLC.

The new build demonstrates the strength and stability of the medical office sector in Sacramento as well as ongoing opportunity within the sector.

“While the pandemic has challenged and will continue to challenge many asset classes within the commercial real estate industry, medical office is well positioned for growth,” says Robb Osborne. “Maintaining health and wellness has clearly become a focal point for people. With the imminent release of a viable and safe COVID-19 vaccine, and research showing that medical office investments are highly favored for their long-term leases, stable occupancy and income, and tenant credit quality, we anticipate this sector to continue to prosper.”

The El Dorado Hills market boasts a median household income of $137,903 and 82.5% of the population within a three-mile radius is covered by health insurance. This creates a particularly strong location for the property use, notes Osborne.

“The El Dorado submarket contains only about 2.5 million square feet of office space,” he says. “The vacancy rate has notably compressed since 2017 and with positive net absorption for the past three years, office demand has remained healthy. These solid fundamentals bode well for continuing demand for this type of new construction in the market.”

8105 Saratoga Way is a 33,000-square-foot two-story building that will focus on dental, medical and minor surgical uses. The property is adjacent to Highway 50 at the Latrobe Road exit and has proximity to residential communities, shopping, daily needs retail and restaurant centers.

“We will likely see an influx of ground-up medical office construction in the coming months, spurred in part by Americans’ renewed focus on health and wellness in the wake of the global pandemic,” Osborne says. “This demand is bolstered by increased stability in the medial office sector. Internal company research shows that medical office investments are highly favored for their long-term leases, stable occupancy and income, and tenant credit quality.”

While there are many medical office users, there are few high-end properties comparable to this new building in the Roseville/Rocklin/Folsom submarkets of Sacramento, according to 8105 Saratoga Way owner Dr. Kelly Hunt of KFG & FOUR Cs LLC.

“As physicians, we’re aware that this higher-end building is truly needed in our community. We will occupy part of the building ourselves and we have received considerable interest from other reputable medical groups in the area,” says Hunt. “The demand for a quality medical office like 8105 Saratoga Way, which offers exceptional visibility and access for Sacramento and El Dorado Hills/Latrobe Road commuters, is already strong and demand will likely grow. In fact, the population of El Dorado Hills has grown by nearly 10% in just the past five years.”

Osborne also notes that he is optimistic about transaction volume in the Sacramento region heading into the new year, despite the challenges of 2020.