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American Specialty Health Signs $110M Lease Renewal

Sorrento Mesa Deal Illustrates Demand Among Healthcare-Related Tenants
June 4, 2018
American Specialty Health Inc. has renewed its lease for nearly 200,000 square feet of Sorrento Mesa office space in a $110 million deal - the latest indicator of high space demand in San Diego among providers of healthcare and related services.

The 10-year deal for the space was announced by San Diego-based Parallel Capital Partners, owner of the office complex known as The Elements, spanning eight acres at 10201, 10221 and 10241 Wateridge Cir. in San Diego.

American Specialty Health has been in the Sorrento Mesa campus since it relocated there from downtown San Diego in 2010, and it now occupies most of the campus’ total 278,787 square feet.

Led by Chief Executive Matt Root, Parallel Capital acquired the three-building, five-story complex in March 2014 in a $72.5 million deal, according to CoStar data. The privately-held company subsequently embarked on a renovation that included extensive upgrades to common areas, landscaping and the campus’ fitness center, with the addition of amenities such as an outdoor workout area. The Sorrento Mesa campus was originally built in 1985.

Headquartered in the Indianapolis market, American Specialty Health provides technology-enabled benefits management services to clients such as employee health plans and insurance carriers. With its other offices in the San Diego, Dallas and Columbia, SC markets, the company employs more than 1,400 and administers health benefits for more than 43 million members nationwide.

  For the Record: In a recent lease deal involving American Specialty Health, the landlord was represented by Mike Hoeck and Matt Carlson of CBRE Group Inc., and the tenant was represented by Alt + Co (Altschuler and Co.)

Local experts have noted that the healthcare industry, which employs more than 120,000 in the San Diego region alone and is among the area's largest economic drivers, has also recently been among the market’s most active users of new office space.

A first-quarter report by Cushman & Wakefield noted that the region’s medical office vacancy rate stood at 7.2 percent - the first time it rose above 7 percent since the third quarter of 2016, but still well below the region’s general office vacancy rate of 12.9 percent at that time.

“Continued low vacancy and few speculative projects in the pipeline should continue to prop up asking rents and could provide opportunities for developers to build new product in certain markets,” said the report from Cushman Senior Director Travis Ives and Associate Joe Zurek, who oversee healthcare-related office transactions for the firm.

Brokers said factors including changes in the way healthcare is delivered, with an overall aging inventory of medical office space, will likely lead to functionally-obsolete buildings requiring replacement or renovation, the costs for which will likely drive asking rents higher.

Lou Hirsh, San Diego Market Reporter  CoStar Group   
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