Medical office buildings are having a moment, with investors flocking to the sector as a more stable alternative to suburban office holdings. Rents are at record highs, deal flow is strong, and demand is outpacing supply amid tight vacancy rates and stable cap rates.

The fundamentals are solid—especially when compared to the office sector as a whole. According to Colliers, average rents for medical office buildings ticked up to $22.61 per square foot in 2021, a year-over-year increase of 1.7% and a new high for the sector. The national vacancy rate fell by 10 basis points to 8.3%—a metric that's especially positive when viewed against the broader office vacancy rate of 14.8% in 2021—and net absorption across the top 100 markets totaled 19.1 million square feet last year.

"Medical office has been a very attractive asset class to both institutional and retail investors for many years due to the stable tenancy of creditworthy tenants with long-term leases who don't often move," says Michael Dettling, principal, Healthcare Real Estate Services at Avi-son Young. "The sector enjoys low vacancy, strong rent rates and steady returns to investors."

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