Bottom Line Upfront:
We believe that Medical Office Building (“MOB”) investments are a sound investment for 2024. They offer stability due to the consistent demand for medical services. Also, they are less subject to the uncertainties plaguing the broader office sector. Experts mostly agree that now is a good time to buy or hold MOBs, expecting the market to remain strong and potentially grow once there’s more alignment in the capital markets.
Why Do We Think Medical Office Building is the Right Investment for 2024?
Despite a generally bleak outlook for the office sector, MOBs are thriving. Medical office building investment performance is due to stable demand, long-term leases, and a slow rate of new construction. Factors such as the Affordable Care Act, an aging population, and advances in medical technology have increased the need for outpatient services, which MOBs facilitate. The 2024 “Emerging Trends in Real Estate” report by PWC and the Urban Land Institute highlights the medical sector’s shift towards a retail mindset, with healthcare providers seeking to expand their market share, thus driving demand for quality medical spaces.
Landlords see MOBs as nearly ideal due to their long lease terms (15-20 years). Additionally, high renewal rates are contributing to a steady occupancy rate of 92.8% as of the second quarter of 2023. Although investment in MOBs has slowed compared to peak volumes in 2022, the market remains active with little distress. The report suggests a potential increase in transaction volumes once market conditions stabilize and buyers and sellers align their expectations.
Over half of the medical office space is owned by users like hospitals and physician groups, while the remainder is held by REITs and private investors, often through specialized operating partners. The market’s growth is cautious, with inventory expanding by tenant demand at around 1% annually.
Expert opinion is largely positive, with 48% advising to buy MOBs, 46.4% recommending holding, and only 5.8% suggesting selling. This reflects a sentiment that MOBs are considered fair or underpriced assets, indicating a maturation into a stable and attractive CRE asset class. HappyNest is keeping our eyes open for investment opportunities in the MOB space.
What do you think?