Medical office sector maintains high demand as other commercial real estate sectors struggle

Despite commercial real estate challenges that started during the pandemic, the medical office sector remains one of the most resilient and a favorite for investors, according to JLL’s Healthcare and Medical Office Perspective report.

Absorption has outpaced new supply and occupancy has remained consistently high above 90% for twenty years, aided now by construction delays during the outset of the pandemic and resulting in a fall in completions amid steady demand for medical office, according to the report. Medical office occupancy is relatively stronger than the commercial office sector and was significantly less disrupted by pandemic, with medical office asking rents averaging 2% growth year over year for the past five years and reaching an average $23 per square foot triple net by mid-year 2022.

Medical office sales are also strong, and reached $9.2 billion in the first half of 2022 after a record performance and investor interest in 2021. JLL anticipates 2022 to close at another record year. Strong demand for health care services and the continued shift to outpatient care assure healthy investor appetite for medical offices.

“Medical office buildings are an attractive alternative asset class to investors during uncertain times due to their stable occupancy and durable income, offering consistent rental rates with annual growth,” said Mindy Berman, senior managing director, JLL Capital Markets, in a statement.

Growth in outpatient demand is driving activity – and competition – among health care systems. A continued shift toward outpatient services will drive provider demand, as well as consumer preference for more convenient and accessible outpatient facilities, according to the report.

“The challenge most health systems and outpatient accessible facilities operators must consider is their overarching strategy to attract and retain targeted population demographics,” said Vionnta Rivers, executive director, solutions development, JLL, in a statement. “Leveraging their physical assets in a more efficient way that enhances the patient experience will become more critical in a post-pandemic healthcare marketplace.”

The health care industry has experienced disruptions such as on-demand access to care, technology and more choices for patients. Factors like location convenience, protocol expectations and consumer preferences for differentiated care all affect whether a patient remains loyal to their provider, according to JLL.