Published on Monday, April 12, 2021

MOB investment decreased 12.2% year-over-year in 2020 to hit $11.1 billion.


While medical office buildings sales volume declined in 2020, it was much less of a drop than the other commercial real estate sectors, according to a report from Colliers.<

MOB investment decreased 12.2% year-over-year in 2020 to hit $11.1 billion, according to Colliers, while cap rates fell 20 basis points to 6.5%. By comparison, commercial real estate posted a 32% decline in sales volume overall.<

Like many sectors, MOB saw an increase in activity in Q4. Sales volume rose from $2.1 billion in Q3 2020 to $3.6 billion.< <

With 67% of total volume in 2020, private equity led the acquisition activity.<

On a metro level, Los Angeles led in sales in 2020 at $812 million. It was followed by New York City at $644 million, the D.C. metro at $422 million and Chicago at $401 million.<

The west paces in the country in MOB pricing at $374 per square foot. The Midwest and Northeast followed at $331 per square foot and $326 per square foot, respectively. For the Mid-Atlantic, Southwest, and Southeast, pricing ranged between $260 and $300 per square foot.<

In Q4, cap rates were lowest in the Southeast at 5.9%. Next was the Southwest at 6.4%. The Northeast posted the highest MOB cap rates at 7.8%. On the best assets, Colliers says sub-6% cap rates were reported for multiple transactions. For instance, a MOB sold in Palm Beach last September 2020 at a quoted cap rate of only 3.9%.<

“Cap rate stability reflects the continued desirability of healthcare as it became one of the most essential sectors in 2020,” Colliers said in the report. Investors view it as a relatively safe and durable investment even in times of economic uncertainty. Healthcare real estate continues to be firmly established as a separate asset class within the real estate sector.<

As investors look to the asset class this year, they will find that supply is an issue in the medical office sector. “Apart from new construction, the US MOB market has a relatively limited supply of investable inventory,” according to Colliers. “Healthcare systems and providers hold nearly two-thirds of all healthcare real estate.”<

While 30 million new square feet of new medical office space will create upward pressure on vacancy rates in 2021, demand is still projected to outpace supply.<

While there might be some conversion of other uses into medical office buildings to increase supply, <these transitions are difficult.<

“It’s really not that easy,” Pete Bulgarelli, president and CEO of Lillibridge Healthcare Services and executive vice president, office, Ventas, said on CBRE’s ‘The Weekly Take’ podcast.<

Medical users have different demands.<

“The ways that physicians deliver care and utilize their space is much different than traditional office,” says Christopher Bodnar, vice chairman and co-head of healthcare and life sciences capital markets, CBRE.<