Strong Demand, Tight Supply Boost Medical Office Building Occupancy

Despite ongoing shifts in healthcare delivery—such as the rise of home and telehealth services—an aging population and growing disease prevalence continue to drive strong demand for healthcare facilities.

However, headwinds including slow population growth, rising labor and supply costs, and challenges in the health insurance market are pressuring the medical office building (MOB) sector, according to a report from JLL.

Over the next five years, U.S. outpatient volumes are projected to rise by 10.6%, while inpatient volumes will grow by just 0.9%. This trend reflects a broader shift toward outpatient care, fueled by technological advances and patient preferences for more affordable, less invasive treatment options. Rapid growth is particularly evident in service lines like orthopedics, spine, vascular, and oncology.

In response, health systems are expanding their real estate presence by acquiring or partnering with physician groups. They accounted for nearly 50% of the 2.9 million square feet leased in 2024, while specialty providers made up 31%. MOB absorption surged in Q4, reaching over 19 million square feet across the top 100 U.S. markets. Occupancy rose to 92.8%, up from 92.4% a year earlier, driven by strong demand and limited new supply.

New MOB construction remains sluggish due to high costs, market uncertainty, and budget-conscious tenants. Q4 saw construction starts at just 0.8% of existing inventory—a record low—compared to 2.1% in Q4 2017. With few new builds, healthcare providers are considering traditional office and retail spaces near patient populations. However, converting these properties poses challenges due to renovation costs and landlord concerns about parking and operational expenses.

MOB asking rents continued to climb in 2024, though at a slower rate—2.5% compared to 3.7% in 2023. Sunbelt cities, along with Boston and Northern New Jersey, led rent growth due to expanding health systems. Other top markets included Miami, Richmond, Indianapolis, Pittsburgh, Orlando, Long Island, Austin, Tampa, Minneapolis, and Portland.

The New York area led the nation in outpatient move-ins to both owned and leased spaces, with two-thirds of Manhattan’s new healthcare tenants occupying non-medical buildings. Philadelphia led in net absorption, while Houston and Atlanta each saw over 400,000 square feet of net growth.

MOBs remain attractive to investors for their stable tenants and high renewal rates. Investment activity increased in 2024, highlighted by Healthpeak’s $4.6 billion acquisition of Physicians Realty Trust. Even excluding this deal, transaction volumes showed modest year-over-year growth.

According to JLL, health systems currently own around 50% of the 1.4 billion square feet of MOB inventory. As outpatient strategies become more central to care delivery, ownership allows systems to tailor tenant mixes and enhance revenue. If borrowing costs decline, health systems could ramp up acquisitions of nearby properties and development sites.

Source: GlobeSt.