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MOBs: A Promising Office Investment

by Index Investing News
August 1, 2023
in Property
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Office buildings in Austin, where a great deal of medical office starts will occur throughout 2023

Medical office buildings are becoming increasingly attractive due to the challenges posed by remote and hybrid work in the office sector, the latest CommercialEdge report shows. These buildings offer a safe haven with consistent demand for health-care services, driven by an aging population and advances in medical technology. Despite the office sector’s sales volume decline, medical office buildings maintained consistent average prices between $260 and $290 per square foot from 2017 to 2022, with the first half of 2023 seeing an average of $296 per square foot, nearly $100 higher than the national average.

At the same time, medical office construction starts have also remained unaffected by the pandemic, staying steady while other types of new construction declined. The demand for the niche is expected to grow, primarily due to demographic shifts, and building owners may consider converting general offices into medical facilities, especially those located near hospitals. While telehealth services pose a minor threat, they are more of a supplement than a replacement for in-person health-care.


READ ALSO: Medical Office Buildings Shine Bright for Health-Care Investors


Nationwide, the under-construction pipeline continued to shrink steadily, featuring 115.8 million square feet of new office space under construction as of June, or 1.7 percent of total stock. In the first two quarters of the year, only 15.7 million square feet began construction, about half of what was started in the same period last year. Almost two-thirds of all starts in 2023 will be concentrated in 10 markets, largely in Sun Belt or life science centers.

The office-using employment sector added 31,000 new jobs in June, accounting for a 1.7 percent increase year-over-year. Office-using job sectors have slowed down in 2023, with growth trailing the overall labor market. Despite the national slowdown, Sun Belt markets, including Nashville, have shown strong growth, adding over 14,000 office jobs, up 4.6 percent in the last year.

Office vacancy continues surge

The national office vacancy rate clocked in at 17.1 percent at the end of June, accounting for a 180 basis-point increase when compared to the same period last year, CommercialEdge data shows. Markets with high rates of remote workers recorded the highest vacancy rates, with San Francisco (21.1 percent), Denver (20.4 percent), Seattle (20.1 percent) leading the way.

National average full-service equivalent listing rates averaged $37.82 per square foot in June, increasing by 60 basis points year-over-year. Average in-place rents increased most in Boston (22.8 percent year-over-year), San Diego (12.6 percent), Philadelphia (6.3 percent), New Jersey (5.5 percent), Twin Cities (5.5 percent) and Orlando, Fla., (4.6 percent).

Read the full CommercialEdge office report.



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