Future Looks Bright for $363 Billion MOB Industry

For an industry that deals tangentially in caring for the sick, the medical office building industry sure seems healthy.

In fact, net operating incomes (NOI) are steadily rising, occupancies are consistently stable and changing demographics suggest a lasting need for more medical office space, according to Hilda Martin, a principal at Revista. The health care real estate industry organization presented fresh data on the medical office building industry at its 2016 Medical Real Estate Forum in Colorado on Oct. 5.

As of the middle of 2016, there were a total of 37,322 medical office buildings—or buildings that house outpatient services, such as physicians’ offices, urgent care centers, free-standing emergency rooms and dialysis centers—in the United States. Together, these buildings constitute 1.4 billion square feet and are worth $363 billion.

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Medical office building deliveries have been increasing steadily since 2014, Martin said during a presentation at the 2016 Medical Real Estate Forum.

“There’s a lot of reasons for this,” she explained. “We’re always talking about the ACA and how many more people are insured. And the people that are being insured additionally—we’re hearing that they’re sicker.”

Plus, America’s population is aging, and older people usually need more medical services, Martin said.

“We’re going to need more space to deliver that care, and it’s coming online,” she said.

Specifically, 22.1 million square feet of medical office space have either already been delivered or will be delivered in 2016, Revista has determined. In 2017, Revista predicts deliveries will amount to 19.5 million square feet.

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The medical office building industry has also enjoyed long-term steady growth in terms of NOI, Martin said.

Long-term, occupancy has been pretty stable in the medical office building sector, Martin noted.

“In terms of occupancy, we’re always talking about how stable our sector is,” she said. “We have longer lease terms, you don’t seem to see physicians moving around as much as occupants in other sectors.”

In the second quarter of 2016, medical office buildings’ average occupancy was 92.5%, Revista determined.

Written by Mary Kate Nelson