Vital Signs December 2023: Healthcare Sector Outlook

VITAL SIGNS

Update on Medical Office Building Performance

Leasing Markets After occupancies had slightly fallen off in 2020, there has been noticeable growth over the past three years. As of the third quarter of 2023, occupancy for MOBs across the U.S. is largely stable at 91.2%. Leasing activity has increasingly moved to higher-quality assets in the medical office space. Demand for clinical space remains quite robust, as health systems and physician practices continue to lease space. Several key themes have manifested in the market: • Move-in ready space remains highly sought after in most markets, particularly for physician practices, as construction costs and supply chain shortages remain challenging, and operating margin pressures persist. • With capital requirements exceeding tenant improvement (TI) allowances, average lease terms have extended a bit, to allow some to amortize additional TI costs over the now-longer lease term. • In certain markets, commercial office landlords have lured some physician tenants with concessions and TI packages. These incentives mirror what these landlords would have offered to standard fare office tenants, but they are now targeting price-sensitive physicians. • The Sun Belt continues to see the most active leasing markets for healthcare assets.

VITAL SIGNS 2022: PERSPECTIVES ON HEALTHCARE AND MEDICAL OFFICE BUILDINGS