Medical Office Construction Expected to Rise in 2024

January 4, 2024|

Major commercial real estate companies and construction forecasting firms agree that medical office building construction – both on-campus, affiliated projects and off-campus ones – is likely to remain strong through 2024.

According to commercial real estate firm Transwestern, although the overall commercial office market continues to struggle in the wake of the Covid pandemic and resulting hybrid and remote working behavior, the medical office building sector is seeing a consistently healthy level of activity nationwide.

The reason behind this, brokers attest, is largely due to asset specificity. Medical office building or MOB tenants – in contrast to commercial office tenants – tend to occupy these properties for longer periods of time. The other equally solid reason, they say, is that advances in medical technology and an increasing aging population are both contributing to the demand and thus the construction of new MOBs.

Investors, Transwestern advisors say, are noticing these longer-term leases and many are increasing their portfolios with MOBs as a preferred asset class.

The increasing population of office owners who prior to the pandemic wouldn’t have entertained a medical deal in their office building have become much more receptive – over the past three years – in negotiating a medical office deal because they need to increase building occupancy to fend off deserted office spaces. Whereas a few years back medical office buildings may have not been regarded as a mainstream real estate investment sector, now they are.

One-practice physicians’ group buildings are particularly attractive to investors these days, especially due to the high-dollar value of these assets as opposed to commercial office spaces.

Examples of major investments in this specific office class include the future 10-story, 230,000-square-foot medical office building – which will also include 590 nearby housing units – known as Valley Health Care San Jose. Bay-area general contractor South Bay Constructors is joining forces with developer PMB plus architects WRNS Studio and Boulder Associates on the large-scale MOB build, which broke ground in October 2023 and is estimated to be completed in late 2025.

Two more large-scale MOB construction project underway represent two of three of Med Center Health’s healthcare construction projects slated to begin in Spring 2024. While one is a new hospital, the other two – all located in Southcentral Kentucky. A five-story, freestanding patient care tower will begin construction soon at MCH’s Bowling Green campus, while a freestanding MOB and outpatient diagnostic imaging center will be erected in Glasgow, Ky.

According to EC&M, U.S. private-sector medical office construction starts that are off-campus and affiliated with major U.S. health systems are expected to increase 21 percent in 2024.

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