Definition
Medical Office (often abbreviated MOB) is a specialized office property type designed for healthcare providers such as physicians, outpatient clinics, diagnostic centers, and specialty medical practices. These properties are typically located near hospitals or within healthcare campuses.
Common Tenant Types
- Primary care physicians
- Specialists (cardiology, orthopedics, dermatology, etc.)
- Outpatient surgical centers
- Imaging and diagnostic labs
- Physical therapy providers
Key Physical Features
- Plumbing-intensive layouts
- Enhanced electrical capacity
- Reinforced floors for imaging equipment
- Patient waiting areas and reception spaces
- ADA compliance and accessibility
Lease Characteristics
- Longer lease terms: Often 7–10+ years due to buildout costs.
- High tenant improvement (TI) costs: Specialized medical buildouts.
- Sticky tenancy: Relocation costs discourage turnover.
- Modified gross or NNN structures: Depending on market.
Performance Drivers
- Demographic trends (aging population)
- Healthcare demand growth
- Hospital system affiliations
- Insurance reimbursement environment
- Proximity to healthcare hubs
Advantages
- Stable demand: Healthcare services are less cyclical.
- High tenant retention: Specialized buildouts create stickiness.
- Institutional interest: Strong capital market demand.
Risks
- Tenant concentration: Large single medical groups.
- Regulatory risk: Healthcare policy changes.
- Re-tenanting cost: High buildout expenses if a tenant vacates.
- Hospital dependency: Affiliation risk if anchor hospital declines.
Example
A 60,000-square-foot medical office building adjacent to a regional hospital, leased to multiple specialty providers under long-term agreements, may provide stable cash flow with lower volatility than traditional office.
Investor Applications
- Demographic analysis: Evaluate population growth and aging trends.
- Hospital alignment review: Assess strength of affiliated systems.
- TI reserve planning: Budget for specialized improvements.
- Lease rollover assessment: Monitor staggered expirations.