Medical Office Buildings Continue to Outperform the Market

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.

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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.

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

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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.

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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.

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

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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.

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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.

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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.

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

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