Investing in Medical Office Buildings
Medical Office Buildings or better known as (MOBs) have shown consistent growth in recent years. Due to an increase in demand for outpatient services and strong historical performance, MOBs are a subset of the greater office asset class and are growing rapidly. In this article, we’ll look at the major advantages of investing in your own medical office space and why it is a particularly favorable time for the asset class.
Why Investing in Medical Office Buildings Makes Sense
Strong Historical Performance
Compared to other industries, medical real estate exhibits steady long-term success rates. For those who wish to lease and/or sublease to other tenants, data suggests that medical tenants are an excellent choice when it comes to occupancy rates.
The strength of MOB occupancy rates is partly due to the length of leases that medical tenants typically sign. This is because of the physical features present in these types of buildings. Spaces such as operating rooms and waiting rooms often mean that the build-out is more costly, meaning that longer leases are typical. These tenants tend to stay longer given the high costs that would be associated with relocating. Not only are MOB rates stable but they were strong even during the pandemic. MOB rent collection reported 99% rent collection in Quarter 2 of 2021.
Growing Investor Demand
Both practitioners and investors have taken notice of the asset potential MOBs provide. Sales prices have steadily increased over the last decade. Even if we take a look at a 5-year period from 2013 - 2020, we see a nearly 50% increase of 49.8% during that time.
The other great thing is that MOBs stand the test of time and show great resistance to market downturns. We believe much of this performance can be attributed to increasing interest in MOBs. Even larger healthcare facilities are shifting their focus to medical office buildings because of their strong performance potential.
Demand for Outpatient Healthcare
Changes in patient preferences, technology, and innovation have led to a growth in demand for outpatient healthcare services too. Outpatient centers across the United States increased 51% from 2005 to 2020. These trends are only continuing to increase.
This is because of the patients’ desire to obtain more convenient and more affordable access to healthcare. As there is a surge in larger out-of-pocket amounts and higher deductibles, healthcare providers are starting to consider performing procedures outside of the traditional hospital setting.
Recession-Resistant Asset Class
Healthcare isn’t going anywhere. In fact, it will only continue to be a staple in our society as the baby boomer generation ages. Alternative options have emerged, but virtual medicine is not a sustainable practice for all healthcare specialties. There is pent-up demand for regular doctor’s visits and elective procedures. Facilities will need to adapt and adjust to a potential future influx of patients.