Medical Office Real Estate Advisory

Put Simply

Medical office buildings are the spaces where doctors, dentists, therapists, imaging centers, and outpatient clinics operate. They're considered one of the most stable types of commercial real estate because healthcare demand doesn't stop in a recession. People still get sick, still need procedures, still require ongoing care, regardless of what the market is doing.

Tenants in medical office buildings tend to stay for a long time. Moving a medical practice is expensive, disruptive, and risky: patients are geographically attached, specialized equipment is anchored to the space, and licensing is location-specific. That stickiness translates into lower vacancy risk and more predictable income for investors. It also means that when a medical tenant signs a lease, they generally intend to stay.

The CCIM Perspective

Medical office real estate (MOB) occupies a distinct and defensible segment of the broader commercial real estate market, one characterized by specialized build-out requirements, substantially higher tenant switching costs, and secular demand tailwinds that provide structural insulation from the headwinds affecting conventional commercial office. Investors who analyze MOB through a standard office lens will consistently misprice its risk-return profile.

Tenant stickiness is the defining investment characteristic of the asset class. The cost of relocating an established medical practice, including specialized plumbing, HVAC, electrical systems (oxygen lines, procedure lighting, sterilization infrastructure), patient notification requirements, licensing amendments, and the reconstruction of referring physician relationships, is sufficiently high that renewal rates in MOB substantially exceed those of general commercial office. Lease terms of 10-15 years are common for larger occupiers; hospital system affiliates and multi-location physician groups regularly sign long-term commitments to purpose-built spaces.

Campus proximity drives significant valuation differentiation. On-campus MOBs (located on or immediately adjacent to hospital grounds) trade at cap rate premiums of 50-100 basis points below comparable off-campus properties, reflecting captive referral traffic, lower execution risk on leasing, and the implicit backing of a health system anchor. Off-campus MOBs serve primary care, specialty clinic, and diagnostic imaging demand, driven by the aggressive outpatient network expansion of hospital systems as they shift volume from high-cost inpatient beds to lower-cost ambulatory settings. This structural shift in healthcare delivery is a multi-decade secular trend that creates sustained demand for well-located off-campus MOB.

Lease structure in MOB is typically modified gross: the tenant pays base rent and some utilities and janitorial, while the landlord retains responsibility for building structure, major mechanical systems, and common area maintenance. NNN structures are emerging for larger single-tenant MOBs, particularly where the tenant is a hospital system with investment-grade credit. Tenant Improvement (TI) allowances for medical space are substantially higher than standard commercial office, commonly $80-$150/SF for new medical build-out, and must be accurately amortized into effective rent analysis to avoid comparing dissimilar economic proposals on an apples-to-apples basis.