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Medical Office CRE Shows Strong Signs of Improvement

Recently, there have been numerous reports that point out several reasons to be optimistic about healthcare real estate in 2023 and beyond. One report in particular, which covers performance in the top 100 U.S. markets, revealed that the medical office property sector’s (MOB) vacancy rate decreased by 40 points during 2022 by 8 percent. That is very favorable compared to the broader office sector where vacancy increased 30 basis points during that same period to 15.1 percent.

An interesting trend we have seen is that despite economic concerns and industry challenges, the medical office property sector continues to strengthen, setting record highs for asking rents, sales volume, and pricing in 2022. In fact, demand is outpacing supply. As a result, development activity is gaining momentum and reflecting confidence in the sector.

Construction projects for medical office buildings have significantly increased too. Net absorption totaled 22.1 million square feet over the last 12 months, up from 12.5 million square feet during the 12 months before. Asking rent for these types of properties also rose 1.7 percent during 2022 to $23.06 per square foot, which is a new high for the sector.

The medical office sector has a promising outlook and while no industry is immune to economic impacts and rising costs, the MOB sector is well-positioned to weather the storm. Additionally, one in five Americans will be 65 or older by 2030 and that number will increase to one in four by 2060, further lifting the demand for medical offices. These facts, coupled with a limited pool of available medical office assets will continue to drive healthy sales volume in 2023.

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