The medical office building (MOB) market experienced robust activity in 2021. Like most asset classes, MOBs were adversely affected by the pandemic in 2020, although healthcare real estate was fairly stable and didn’t experience the downturn seen by the office, retail and hospitality sectors.
MOB’s stability during the pandemic, along with Its notable growth in 2021, reflects positively on the larger healthcare industry as it emerges from the pandemic while facing headwinds due to supply chain issues, staff shortages and inflation.
Despite being in the early stages of 2022, the year started with one of the largest transactions that the medical office sector has seen. In February, Healthcare Realty Trust and Healthcare Trust of America announced a merger valued at $18 billion.
The MOB sector set record highs for asking rents and sales volume in 2021, and demand continues to drive activity for new construction and acquisitions in markets nationwide.
Colliers research shows the national vacancy rate fell by 10 basis points in 2021 to 8.3%, which compares favorably to the broader office sector where vacancy rose to 14.8%. Net absorption across the top 100 markets totaled 19.1 million square feet last year, up from 17.6 million square feet in 2020, and average net asking rents for MOB space increased by 1.7% — setting a new high for the sector.
Investors have also taken notice, and capital is pouring into the space. Total investment in MOBs set a record in 2021: rising from $11.9 billion in 2020 to $17.4 billion in 2021. The country’s aging population has increased the outlook for these kinds of properties, and investment is expected to continue as MOBs market resiliency and high occupancy make them stable and attractive assets.
Markets to Watch
MOB activity is surging nationwide, with asking rents highest in the largest cities. Vacancy in the five of the leading MOB markets – Boston, Chicago, Miami, New York and Philadelphia – closed out 2021 with vacancy rates lower than the U.S. average.
With demand expected to continue to boom, many areas are focused on the development of new product. Currently, there are 12 metros with more than one million square feet of MOB construction underway, led by Houston with 2.4 million square feet. Chicago and New York follow next with both at 1.7 million square feet.
Sales volume and activity in 2021 was impressive and will likely stay the course through 2022. In 2021, 19 metros exceeded $250 million in MOB property sales, led by Los Angeles with $1 billion, followed by Phoenix at $656 million and New York at $629 million.
In the Pipeline
MOBs typically include healthcare services such as ambulatory surgery centers (ASCs), imaging centers and physician offices. CommercialEdge reports that more than 16 million square feet of properties under construction are set to include medical office space components,
There are 703 MOB projects currently under construction — totaling 50.4 million square feet as of Q4 2021, up from 44.2 million square feet 12 months earlier. Nearly 70% of current MOB projects — and 60% of total square footage underway — are off-campus.
While medical office properties are considered a niche asset class, their resiliency and performance are expected to continue highlighting the sector as an attractive investment opportunity.
For more on the MOB sector’s performance and outlook, download the Colliers 2022 Healthcare Marketplace report.