2025 Spring Healthcare Report

Healthcare Sector Hoping to Avoid the Broader Downturn of the Economy

Despite the volatility of the traditional office market, demand for medical office buildings (MOBs) has remained stable, and is in a better position to weather potential recessionary events than other industries. As the demand for decentralized care grows, health systems are investing in smaller, outpatient-focused facilities. The pipeline for new medical office building development has slowed but it is still healthy, with a more disciplined approach, including a focus on pre-leased or build-to-suit projects. Growth is stronger in suburban markets and in MOBs with ambulatory care, outpatient surgery, and chronic disease management. Health systems are increasingly entering joint ventures with private equity or REIT partners to mitigate risk and shield capital burdens.

Tenant View

• Tenants are increasingly requiring specialized buildouts and are willing to sign longer deals for higher TIs.

• Weak demand for traditional office space, and the shuttering of many well-located retail pharmacies, has presented an opportunity to re-purpose spaces for medtail and other MOB uses.
  
  
• Investors are attracted to MOBs due to the typically longer, stable leases, making them a target for institutional and private investors. An increasingly competitive landscape for investors will push lease rates higher to justify more aggressive underwriting.

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