Despite the limited transaction volume, medical office building pricing continues to hold steady.

The strong pricing shows a sustained level of market interest in the MOB space, particularly from private and institutional investors, according to the H2C Industry Insights Medical Office Building Quarterly Update 2Q20 from Hammond Hanlon Camp LLC.

Investors view MOB assets as a haven, according to the H2C report. 

“The uncertainty caused by the COVID-19 pandemic seen in other real estate asset classes, such as retail and hospitality, is increasing investor interest in the stability of the MOB space, which benefits from significant long-term tailwinds, such as an aging population and increased healthcare spending,” according to the report.

The report indicates that low-interest rates, high demand, low supply and capital availability will continue to support values in the MOB sector. The sector posted a healthy Q1 2020, with volume for the half only 1.48% below H1 2019. 

Health care systems could be active sellers of assets, presumably in sale-leaseback scenarios in the future. Pandemic losses are expected to total $323.1 billion in 2020 for healthcare systems, according to the American Hospital Association.

“Monetizing real estate is often a favorable way to bolster cash positions at attractive yields,” according to the HSC report. “Health systems considering MOB sales can potentially utilize the capital raised through asset sales toward new acquisitions, repayment of debt, or as a cash buffer to protect against further financial uncertainty.”

In Q3’s largest transaction, Healthcare Realty Trust sold a 200,000 square-foot comprehensive outpatient care facility in Oklahoma City, OK, occupied by Mercy St. Louis. The transaction placed Mercy Health as the largest acquirer of MOBs in Q3. Israel-based W-D Group was the second-largest acquirer of MOBs in Q3, closing one $103 million acquisition.

Physician Tenants Struggle 

The asset class is not bullet proof from the pandemic though, with some tenants, such as physician groups, experiencing difficulties. 

Eight percent of the respondents to the Physicians Foundation’s 2020 Survey of America’s Physicians indicated that they have closed their practices due to the pandemic. With more than 200,000 medical practices in the US, that would mean the potential loss of more than 16,000 medical practices, according to data from market research firm SK&A.

The majority (78%) of physicians who indicated they have closed their practices were surgical, diagnostic, internal medicine or other specialists. Twenty-two percent are in primary care. Additionally, 5% of physicians surveyed indicated they have moved from a direct patient care role to a non-patient care role due to COVID-19. The Physicians Foundation suggested that this trend is likely to reduce total physician full-time-equivalents.