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Top 5 Markets for Medical Office Investing in 2023
Not sure where to buy a medical office? Check out these five cities that have a clear shortage.
Medical office real estate is one of the most commonly overlooked niche commercial property sectors. Yet, it’s one of the sectors positioned to perform the strongest in the coming years.
Why?
Medical office buildings — also known as MOBs — tend to have long-term, strong tenants that are not severely affected by wider economic turmoil. People will always need to go to the doctor, after all, and this plays into the sector’s strength.
Not every medical property will outperform, of course, but generally MOBs in growing cities (or cities with aging populations) near major hospitals face few challenges. As a result, in the past few years several major investors have begun diversifying into the medical office sector.
Want an example? In October last year, Agora Realty & Management shelled out $30 million for a medical office plaza outside of Los Angeles. This wasn’t its first MOB investment, but the company traditionally has focused on grocery-anchored retail properties.
Niche or not, it provides real opportunity for major, stable returns — and there are several strong acquisition financing options available.
We analyzed major markets across the country to determine five markets we anticipate will be strong places to invest this year. Our methodology evaluated the approximate inventory of medical office space, contrasting it with the population’s healthcare needs (and the space required). Those cities with the largest potential gaps are below.
The Top 5 Cities for Medical Office in 2023
Rank | Market |
|---|---|
1 | San Bernardino-Riverside, California |
2 | Long Island, New York |
3 | Fresno, California |
4 | Springfield, Massachusetts |
5 | Asheville, North Carolina |
5. Asheville, North Carolina
Asheville, nestled in the Blue Ridge Mountains, has been steadily growing in population in recent years. The largest city in western North Carolina has a robust healthcare system: The largest hospital, Mission Hospital, has more than 800 beds and is a regional care provider to the city and the 18 counties in the region.
The city’s healthcare sector has expanded in recent years and continues to grow, according to employment data from the Bureau of Labor Statistics. As the population expands, more and more healthcare providers will be needed — and the metro’s existing inventory of medical office space is lagging behind. Expect asking lease prices to expand in the next few years, with even larger opportunities for investors renovating dated properties.
4. Springfield, Massachusetts
Less than 90 minutes west of Boston, Springfield is located in the Pioneer Valley of Western Massachusetts and is the state’s third-largest city. The metro has significant demand for medical office space — although Springfield’s population growth has remained relatively flat in recent years, there is a large, aging cohort that will place additional demands on the current systems.
The two largest hospitals in the city — Baystate Medical Center and Mercy Medical Center — have significant capacity, but much more will be needed on the private medical office side. Thirty minutes to the east, Worcester is experiencing a similar phenomenon, though the proximity of Boston does alleviate some of the demand for space.
3. Fresno, California
The city of Fresno has a large amount of medical office space, so it may be surprising to find it on our list. However, most of Fresno’s medical office buildings are dated or at the lower end of the quality spectrum — making the city an ideal spot for a value-add investor with an eye for MOBs.
Fresno’s two largest hospitals — Saint Agnes and Community Regional — are the mainstay of the city’s healthcare sector. Many of the metro’s medical office buildings are concentrated around these two facilities. The city has a rapidly growing aging population, however, so there are many MOBs located throughout the area providing various services from general practitioner to specialist care.
2. Long Island, New York
The state of New York has been experiencing a severe shortage in skilled medical staff, and this is also apparent across Long Island. While there’s ample medical office space on the island, Suffolk County has a clear shortage, particularly in its eastern reaches.
While many of Long Island’s aging residents head toward Queens for regular care, well-placed medical office buildings are continuing to capitalize on rent growth simply due to the lack of inventory. Additionally, the market is ideally positioned for value-add investing, as more than 75% of the existing medical office space is more than 20 years old.
1. Riverside-San Bernardino, California
As a whole, the office market in Riverside and San Bernardino counties is rather healthy, with relatively low vacancy rates and rising rents. The medical office sector — particularly looking further east, toward Palm Springs — is even more dynamic, with low inventory intersecting with high demand from a growing, aging population.
While the Inland Empire is much better known for its red-hot industrial real estate sector, the demographic growth this has brought — not to mention far more affordable pricing compared to nearby Los Angeles — has amplified other sectors, from multifamily to medical office.
Related Questions
What are the best markets for medical office investing in 2023?
The best markets for medical office investing in 2023 will depend on a variety of factors, including the local population's median age, the presence of major hospital campuses, and the availability of retirement communities. Markets with a higher median age and those with major hospital campuses or retirement communities tend to offer the most potential for medical office investments.
For more information on medical office investments, you can read our blog post Top 3 Medical Office Investment Considerations and explore our medical office loan products.
What are the benefits of investing in medical office real estate?
Investing in medical office real estate offers several benefits, including a stable, sizeable return due to a strong tenant base, low vacancies, and increasing demand for outpatient services as retired populations grow. Additionally, medical office buildings can include a variety of assets, such as ambulatory surgery centers, screening or testing centers, and general or specialist physician office buildings. Commercialrealestate.loans provides more information about the benefits of investing in medical office real estate.
What are the risks associated with investing in medical office real estate?
Investing in medical office real estate carries the same risks as any other commercial real estate investment. These include market risk, tenant risk, and financing risk. Market risk is the risk that the value of the property will decrease due to changes in the local market. Tenant risk is the risk that the tenant will not be able to pay rent or will vacate the property. Financing risk is the risk that the loan terms will not be favorable or that the loan will not be approved. Additionally, medical office real estate investments may be subject to additional risks such as changes in healthcare regulations or the availability of medical services in the area.
What are the most important factors to consider when investing in medical office real estate?
When investing in medical office real estate, the most important factors to consider are location, financing options, and the property itself.
Location is critical for any commercial real estate sector, but medical office buildings have different dynamics than traditional office properties. MOBs near major hospital campuses or large retirement communities tend to perform better, and markets with a higher-than-average median age can offer significant investment upsides.
Before visiting the property or looking at financing options, you should also consider the property itself. Factors such as the size, condition, and amenities of the property can all affect its value and potential return on investment.
Finally, you should look into your financing options. Commercial real estate loans for medical office buildings are available from a variety of lenders, and the terms of the loan can vary significantly.
What are the current trends in medical office real estate investing?
The current trends in medical office real estate investing are focused on location. Medical office buildings on or near major hospital campuses tend to perform better, as do those near large retirement communities or in markets characterized by a higher-than-average median age. Additionally, investors should consider their financing options before visiting the property.
For more information on medical office real estate investing, please visit Commercial Real Estate Loans' blog post on the Top 3 Medical Office Investment Considerations.
What are the best strategies for investing in medical office real estate?
The best strategies for investing in medical office real estate include considering the location of the property, looking at the tenant mix, and researching financing options. Location is critical for medical office buildings, as those near major hospital campuses or retirement communities tend to perform better. Additionally, it's important to look at the tenant mix of the property, as this can affect the stability of the investment. Finally, researching financing options is key, as there are specialized loan products available for medical office investments. This article provides more information on the top 3 considerations for acquiring a medical office property.