In December 2024, experts like Cushman & Wakefield and CBRE agreed that 2025 was poised to become the year of the medical outpatient building.
That now seems a trifle premature.
This new MOB is taking the place of an acronym that used to commonly represent medical office building. This had been a regular part of the landscape, but has been taking some hits in 2024. In the first half of the year, Cushman & Wakefield's short take was that volume and pricing remained muted, although there was continued resiliency in the category.
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In May, CBRE noted that investment in medical office buildings stumbled in the first quarter of 2024, falling by 21% quarter-over-quarter to $1.6 billion and down 7% year over year. Also, MOB investment volume fell by 48% compared to the 2019-to-2023 period, as high interest rates with accompanying major rate cap costs and inflation limited medical office investment activity.
Then came data from RevistaMed, as reported by Healthcare Real Estate Insights. The dollar volume of MOB sales in the first quarter reached a low point since 2016.
Nationwide, MOB sales were $1.5 billion in Q1. That was down 44% from Q4 2024 and marks the lowest quarter of sales in the asset class since Q3 2023. The volume then was $1.6 billion.
However, the product type's performance is strong. The overall occupancy rate in the top 50 markets in the U.S. was 92.8%, an increase from 91% at the start of 2021.
Also, triple-net rents were strong for MOBs. They reached a historical high of $25.80 during Q1, although rental rate growth has slowed. It dropped to 1.8% in Q1, a steady decline from the historical 10-year high of 2.9% in Q1 2023.
The reason is a mismatch between demand and supply, as GlobeSt.com has previously reported.
Demand for outpatient care is surging, fueled by an aging population and rising disease prevalence. Outpatient volumes are expected to grow by 10.6% over the next five years, far outpacing inpatient growth of just 0.9%. This shift is increasing pressure on developers to meet demand, but high construction and financing costs constrain new supply. As a result, newer properties command higher rents, widening the gap between top-tier and older facilities.
In short, there haven’t been enough MOB properties to meet demand. Constrained construction of new ones probably means that operators hold onto their current facilities until additional stock is available.
And operating margins remain thin, estimated at just 4.9% by Kaufman Hall in December 2024. Medicare reimbursement rates recently fell by 2.83% from 2024 to 2025, putting additional pressure on revenue streams. These factors suggest that while MOB rent growth will remain steady, outsized jumps are unlikely.
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