Executive summary
Against a backdrop of strong demographic tailwinds and technological advancement, outpatient medical buildings, commonly referred to as medical office buildings (MOBs), are increasingly viewed as a strategic allocation within commercial real estate portfolios.
Supporting this outlook are these key developments:
- Demographic drivers, fueled by the aging Baby Boomer cohort and the anticipated continued rise in healthcare spending, will support elevated demand for healthcare services and outpatient medical space.
- The continued evolution of care delivery, driven by ongoing technological advancements as well as healthcare systems’ desire to control costs, has enabled complex procedures and surgeries to be performed in outpatient settings while still achieving desirable outcomes.
- Greater emphasis on localized care, as patients prioritize convenience and proximity, is driving providers to move services closer to where patients live.
- Sticky tenancy, wherein occupiers invest meaningful capital alongside building owners, results in long, predictable leases and cash flow from a creditworthy sector.
MOBs are designed for healthcare services that do not require overnight stays in the hospital. They typically facilitate:
- Physician practices (primary care and specialists)
- Diagnostic imaging (MRI, CT, X-ray)
- Outpatient surgery centers
- Lab services
- Urgent care clinics
- Physical therapy clinics
Institutional investors, driven by the pursuit of solid and dependable cash flow streams and attractive risk-adjusted returns continue to seek to allocate capital to defensive sectors with powerful secular tailwinds.
Several important structural drivers are key tailwinds for the MOB sector. These include a substantial demographic development in the form of an aging Baby Boomer population and the associated rise in healthcare spending, as well as an increasing number of procedures and service lines being targeted for outpatient settings, and hospitals seeking margin expansion while facing rising costs.
The aging of the massive Baby Boomer cohort, combined with the ongoing shift to outpatient care settings driven by innovation and healthcare providers’ need to control costs, is expected to result in elevated demand for MOB space going forward. The forecasted growth in the older age cohorts over the coming decade presents potential upside to the sector’s outlook.
Supported by demographic growth, needs-based demand drivers, and historically attractive risk-adjusted returns, rising institutional demand for MOB assets should further support the sector’s outcomes going forward.
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