REAL ESTATE NEWS

Medical outpatient buildings (MOBs) have quietly become some of institutional real estate's most reliable performers, consistently weathering market cycles without fanfare, according to a new white paper from the Revista Rising Leaders Council.

Using a decade of NCREIF Property Index data alongside vacancy and NOI growth figures from CBRE and Green Street, the report evaluated performance across four key measures: total returns and volatility, risk-adjusted efficiency, downside protection, and operating stability. Across each, MOBs ranked at or near the top among core property types, which include industrial, office, retail and apartments.

MOBs combine competitive returns with remarkably low volatility, posting average annual returns of roughly 6.6% with volatility of 4.2%, significantly lower than traditional sectors, the report said. Industrial properties produced the highest absolute returns at about 12.4%, but with nearly three times the volatility at 12.7%. Apartments and retail generated more moderate returns, roughly 4% to 6%, with volatility between 5% and 7%, while office lagged behind with roughly 2% returns and more than 8% volatility.

The sector also leads on risk-adjusted performance, achieving the highest Sharpe ratio at 0.95, which measures how much return an investment earns for each unit of volatility. By comparison, industrial scored 0.77, apartments 0.45, retail 0.27 and office trailed at -0.04. This illustrates MOBs' ability to generate meaningful excess return while taking on less risk, a critical advantage for portfolios that value consistency, said the report.

MOBs further distinguish themselves with strong downside protection, as peak-to-trough appreciation declines were limited to roughly 13%, similar to industrial but far shallower than retail at 24%, apartments at 18% and office at approximately 37%. Even excluding the income component, MOBs remained among the least volatile sectors, demonstrating resilience during market downturns.

The sector's stability is reinforced by predictable cash flow and occupancy, with the highest income return-to-volatility ratio at 15.8, compared with industrial at 6.2, office at 7.8, apartments at 10.4 and retail at 9.4. Vacancy rates have consistently stayed between 9% and 13% over more than a decade, with minimal quarter-to-quarter changes. In contrast, industrial, retail and office experienced roughly double the vacancy volatility, while apartments were stable but with lower income return efficiency, according to the report.

Source: GlobeSt/ALM