May 20, 2024

Vacancies at Medical Office Buildings are Trending Downward

Even though the Phoenix office market has faced challenges across multiple fronts for over four years, one segment of the sector has bucked the trend.

 

Medical Buildings Vacancy Below the Pre-Pandemic Level

 

Property performance for medical office buildings, or MOBs, has strengthened since the onset of the pandemic, with vacancy declining from about 13.6% in the fourth quarter of 2019 to 11.1% in the first quarter of 2024. Shifts in sales activity reflect the resilience of medical buildings. In the five years before the pandemic’s outbreak, MOB sales accounted for about 15% of total office investment volume. That share climbed to 38% in the trailing 12-month period through the first quarter of this year. For example, in March, a joint venture between TPG Angelo Gordon and Cypress West Realty Management paid $21.25 million, or $251.81 per square foot, for McDowell Mountain Medical. The more than 84,700-square-foot medical office property is located in North Scottsdale and was 97% leased at the time of sale to a mix of tenants, including cosmetic surgery providers, dentists and an occupational therapist.

By the nature of their work, MOB tenants tend to rely more on their physical footprint than traditional office users. Health care providers such as primary care physicians, dentists, dialysis centers and medical labs, among others, often require specialized equipment and hands-on care that is difficult to replicate in a remote setting. As a result, MOBs have been less affected by alternative workplace arrangements, and their tenants have been comparatively “sticky” due to the cost and difficulty of relocating. In addition, long-term demographic trends, including the aging of the U.S. population, point to increased demand for medical services in the coming years. Valley suburbs such as Sun City, Paradise Valley, and Scottsdale are popular retirement options; drawing older residents and strengthening underlying MOB demand.

Team Trbo,

Craig Trbovich

Source: CoStar

In the News, Phoenix Commercial Real Estate News, Uncategorized
About Craig
Craig Trbovich is a commercial real estate broker with Commercial Properties, Inc. in Scottsdale, Arizona, specializing commercial sales and landlord representation in the Phoenix Metro Area. He applies 35 years of experience as a CPA and an investor to help other owners and investors maximize their returns, bringing a strong financial and tax perspective to all aspects of commercial real estate ownership. His strengths include sales and leasing, as well as an in-depth knowledge of the development community and the local market.