As the broader office sector continues to search for equilibrium, medical office buildings appear to offer a rare dose of stability for lenders and investors, with loans backed by such assets outperforming those tied to traditional offices by a wide margin, according to Trepp. The firm’s analysis shows that the delinquency rate for commercial mortgage-backed securities loans collateralized by medical office properties stands at 6.15%, roughly half the 11.31% rate seen among conventional office loans.
The stronger loan performance reflects a solid underlying property market that continues to buck the broader office sector’s challenges. Data from Transwestern shows the national vacancy rate for medical office buildings was just 5.8% in the second quarter, compared with 14.5% for the overall office sector. While vacancies in traditional office buildings climbed by 40 basis points year-over-year, the medical office segment actually saw a 20-basis-point decline.
That divergence is being fueled by steady demand growth tied to demographic and workforce trends. The Bureau of Labor Statistics reports that employment within physicians’, dentists’, and other health practitioners’ offices increased in August from a year earlier, while jobs in conventional office-based industries—such as professional and financial services—declined.
The health care industry’s expanding employment footprint comes as the nation’s population continues to age. Marcus & Millichap projects the number of Americans aged 65 and over will rise by about seven million within five years, a demographic shift expected to generate approximately 23 million additional annual doctor visits. The brokerage anticipates that the growing demand for outpatient services will sustain strong occupancy and rent performance in medical office properties.
That demand stands in sharp contrast to what’s been unfolding across traditional offices, where tenants have continued to reassess their real estate use since the pandemic. Nationally, the sector recorded 10 million square feet of negative absorption during the second quarter, reflecting more space being vacated than leased. Medical office space, meanwhile, posted 1.06 million square feet of positive absorption over the same period, according to Transwestern.
Performance metrics reflect that divide over the long term. Between 2015 and 2024, medical office properties saw compounded revenue growth of 7.3%, compared to just 2.98% for traditional office assets, Trepp data shows. That steady trajectory—supported by inelastic demand for health care and relatively stable occupancy—has translated into lower CMBS delinquency and stronger investor confidence in the niche.
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