June 9, 2023

Medical Office Buildings (MOB) are a key part of Alliance’s investing portfolio, and this sector continues to outperform other kinds of commercial real estate.

The highly respected research outfit Marcus & Millichap recently published a report on commercial real estate trends. The data really supports our investment strategy in several ways.

While tighter lending standards and higher interest rates are leading to less overall construction, this doesn’t apply evenly across sectors.

The medical industry remains strong, and 14% of all office space expected to come online in the US in 2023 is expected to serve this growing sector. This reflects strong growth and is an important signal of long-term investor confidence in this area.

As always in real estate, location matters. The national commercial office vacancy rate is 16.8%. In some geographies, this number is well over 20%. But MOB is doing much better, and high demand for medical facilities is helping the overall commercial real estate market in some areas.

Office vacancy in Riverside-San Bernardino is just 6.8%, and this is at least partly due to strength in the MOB sector.

Alliance’s strategy of investing in high growth areas, including the sunbelt and secondary and tertiary cities is also performing well. Tertiary markets accounted for more than 47% of commercial real estate transactions in the last year, compared to 42% in 2019.

Cities like Tampa, Jacksonville, Atlanta, Memphis, and Houston are showing both low inventory growth and a very small uptick in vacancies. With tighter lending and slower building, this bodes well for investors in these markets.

At Alliance, we’ve long believed that investing in MOB in high-growth geographies would deliver market-beating returns. This new analysis confirms it, MOB is a fantastic asset class.

There is still plenty of opportunity for long-term investors. Alliance will continue leading the way.

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