Executive summary
Against a backdrop of strong demographic tailwinds and technological advancement, outpatient medical buildings — commonly referred to as medical office buildings (MOBs) — are increasingly viewed as a strategic allocation within commercial real estate portfolios.
Supporting this outlook are these key developments:
- Demographic drivers. The aging Baby Boomer cohort and the anticipated continued rise in healthcare spending are expected to support elevated demand for healthcare services and outpatient medical space.
- The continued evolution of care delivery. Ongoing technological advancement, together with healthcare systems’ desire to control costs, has enabled complex procedures and surgeries to be performed in outpatient settings while still achieving desirable outcomes.
- Greater emphasis on localized care. As patients prioritize convenience and proximity, providers are moving services closer to where patients live.
- Sticky tenancy. Occupiers invest meaningful capital alongside building owners, resulting in long, predictable leases and cash flow from a creditworthy sector.
What MOBs facilitate
MOBs are designed for healthcare services that do not require overnight stays in hospital. They typically facilitate physician practices (primary care and specialists), diagnostic imaging (MRI, CT, X-ray), outpatient surgery centers, lab services, urgent care clinics and physical therapy clinics.
Institutional investors — driven by the pursuit of dependable cash flow streams and attractive risk-adjusted returns — continue to allocate capital to defensive sectors with powerful secular tailwinds. Several structural drivers act as tailwinds for the MOB sector: an aging Baby Boomer population and the associated rise in healthcare spending, an increasing number of procedures and service lines being targeted for outpatient settings, and hospitals seeking margin expansion while facing rising costs.
The aging cohort is expected to propel demand
The long-awaited “silver tsunami” has begun to accelerate in the U.S. At the same time, medical breakthroughs in chronic disease management and prevention, improvements in emergency care, behavioral shifts and health-conscious dietary habits have improved longevity outcomes.
The 65+ population has more than doubled since 1990, from 31 million to 63 million (17% of the total population), and accounts for 37% of all personal healthcare spending. This cohort is projected to reach over 74 million by 2035. Within that group, the 85+ cohort has increased from 9.8% of the 65+ group in 1990 to 10.5% today, and consumes roughly three times as much healthcare per person as those aged 65–74. By 2035, the 85+ cohort is expected to make up 13.3% of the elderly population.
As more individuals live into their 70s and 80s, demand increases for chronic disease management (cardiology, oncology and endocrinology), orthopedics, imaging and diagnostics, and post-acute rehabilitation services.
While there are investment risks — including provider consolidation affecting tenant bargaining power — MOB demand is primarily driven by age cohort growth and underlying healthcare utilization needs, which are durable, long-term drivers.
An ongoing shift to MOBs
When clinically appropriate, procedures performed in MOBs are less costly for health systems and providers. The average cost per surgical procedure in an ambulatory surgery center is approximately $3,157, compared with $7,716 in a hospital outpatient department.
Migration toward MOBs has been facilitated in part by improvements in medical technology. Minimally invasive robotics and electronic health records have paved the way for greater utilization of ambulatory surgery centers, while advances in portable imaging have increased the prevalence of outpatient procedures in cardiology, oncology infusion and medical imaging. Reflecting this trend, eight of the ten fastest-growing healthcare service lines over the next five years are expected to be outpatient.
U.S. healthcare spending has historically grown faster than GDP, and long-term projections suggest this will persist. Spending is projected to grow at an average rate of 5.8% per year over the coming decade, up from 5.5% over the past decade, and comprised 18% of U.S. GDP in 2024.
A pillar of strength
Over the past 10 years, outpatient medical has outperformed the all-property NPI benchmark on a risk-adjusted basis. Apart from the industrial sector, outpatient medical outperformed all traditional property sectors over the same period.
The sector’s historically low volatility reflects tenant stickiness, longer lease terms relative to other property sectors, and limited speculative development, as most MOB construction is pre-leased. Retention rates often surpass 80%, with lease terms typically ranging from 7 to 10 years and extending beyond 20 years for highly specialized facilities.
MOBs have also proven resilient. During the COVID-19 recession, GDP declined 9.5% year over year; despite this, MOB tenant occupancy remained stable at approximately 91–92% from 2019 through 2021, with no meaningful disruption.
The full report, including all figures and sources, is available in the PDF above. General educational information only — not tax, legal or investment advice.
The views expressed in this article are for general informational purposes only and do not constitute investment, tax, or legal advice. All investors should consult their own qualified advisors before making investment decisions.