Medical Office Loans Stand Out for Steady Returns And Rising Revenues

While the broader office sector continues to search for balance, medical office buildings have emerged as a bright spot for lenders and investors.

According to Trepp, loans backed by medical office assets are performing far better than those tied to traditional office properties, with a CMBS delinquency rate of 6.15%—roughly half the 11.31% seen in the conventional office sector.

This outperformance reflects a healthier property market. Transwestern reports a 5.8% national vacancy rate for medical office buildings in Q2, compared with 14.5% across all office properties. Traditional office vacancies rose by 40 basis points year over year, while medical office vacancies fell by 20 basis points.

Strong fundamentals are driving that divergence. Employment in physicians’, dentists’, and other health practitioners’ offices increased year over year in August, according to the Bureau of Labor Statistics, while jobs in professional and financial services declined. The aging U.S. population is further boosting demand: Marcus & Millichap projects that the 65+ population will grow by seven million in the next five years, leading to an estimated 23 million more annual doctor visits and heightened demand for outpatient space.

As a result, medical office leasing trends are moving in the opposite direction of traditional offices. The broader office market recorded 10 million square feet of negative absorption in Q2, while medical office space posted 1.06 million square feet of positive absorption over the same period.

This long-term performance gap is evident in revenue growth. Between 2015 and 2024, medical office properties recorded a 7.3% compound annual revenue growth rate, compared to 2.98% for traditional office assets, according to Trepp. Supported by stable occupancy and consistent healthcare demand, medical office properties have delivered lower delinquency rates and stronger investor confidence, underscoring their resilience in a shifting commercial real estate landscape.

Source: GlobeSt.