Executive Summary
Despite significant volatility in the capital markets and operating and financial headwinds in the healthcare industry, medical office buildings (MOBs) are holding their own as attractive investment opportunities, according to our survey of a diverse range of real estate investors.
The survey’s key findings include the following:
- Almost 90% of our survey respondents report that occupancy rates have improved or remained the same over the last 12 months.
- 86% of respondents expect their portfolio of MOBs to perform the same or better in 2024.
- 84% of respondents anticipate annual rent escalations of 3% or higher for new or renewal MOB leases.
- 80% of respondents anticipate a lease renewal probability rate of 85% or above.
- Only 3% of respondents see a lower lease renewal probability in their market; 65% say renewal probabilities will remain status quo, while 32% see a higher probability of lease renewals.
- No respondents report a decrease in rental rates; approximately half say rates have increased and the remaining half indicate that they have stayed the same.
One potential area of challenge is tenant improvement packages; 76% of respondents say that more aggressive packages have been required to induce tenants to sign or renew their leases. But significantly fewer respondents—just 16%—say that they have had to be more aggressive in offering other lease incentives, such as free rent, to induce tenants to sign. This could suggest that the increased demand for larger tenant improvement packages is being driven primarily by rising costs due to inflation, rather than an uptick in landlord concessions or broader improvement requirements.
In short, the survey results indicate a market with significant fundamental strength despite capital market challenges. Cap rates are up, meaning valuations are down, and transaction volumes are also down. Past experience suggests that this dynamic may offer a significant opportunity to buy high performing assets at attractive historic relative valuations.
About the Survey Respondents
- 37 healthcare real estate investors
- Collectively manage over 60 million square feet of MOBs
- Represent diverse investor platforms
