Throughout the pandemic, the office space market saw unprecedented turmoil. However, the commercial assets that proved to be most resilient were medical office buildings (MOBs). That is because people will always need healthcare, and healthcare practitioners will always require a physical space from which to work.
The pandemic has also shown a worrying undersupply of state-of-the-art MOBs. Complicated to build, developers have long favored more traditional options. With this in mind, 42Floors wanted to see how the U.S. medical office market changed over the years and what the future has in store for it. Using CommercialEdge data, they recently released a report covering the evolution of MOBs between 2012 and 2021 in the top 25 U.S. commercial real estate markets. Here are the main findings:
Total MOB Market Up 13%: LA Dominates
The largest U.S. medical office markets witnessed an impressive 13% growth over the last decade. More than 52.7 million square feet of new space was developed, bringing the total to more than 470 million square feet of MOBs across the country.
Los Angeles is by far the country’s largest medical office market in terms of total square footage, boasting an impressive 41 million square feet across more than 1,000 buildings. However, LA’s MOB market only saw a 9% growth between 2012 and 2021.
Texas Powerhouses Not Far Behind
While LA dominates, two Texas powerhouses are slowly catching up. Houston took the #2 spot in the ranking, with 33.2 million square feet of medical office space in 2021. This was after adding 4.3 million square feet over the past decade, an increase of 15%.
The Dallas-Fort Worth market was close behind with 33 million square feet of medical office space in 2021. Like Houston, Dallas enjoyed similar growth, adding 4.6 million square feet of new builds, or 16%, over the last ten years.
Together with LA, these two Texas markets account for almost a quarter of all the medical office space added since 2012.
MOB Growth Strongest in Lower-Tier Markets: Twin Cities Top the Charts
In terms of actual growth over the last ten years, Minneapolis-St. Paul took pole position with a staggering 24% increase in MOBs. While only ranking 15th for total square footage, the metro added more than 3 million square feet over the past decade, almost the same amount as LA. This has brought the total to 231 medical office buildings covering 15.8 million square feet.
With 17% of the Minneapolis population being 65 or older, there seems to be a trend for higher growth among lower-tier markets with aging populations. Another example is Richmond-Tidewater, which has seen the MOB market grow by 22% over the last decade. This has resulted in 2 million square feet of new builds, bringing the total to 11.3 million.
LA Responsible for Largest MOB, Followed by Manhattan
Medical office buildings are generally smaller than their traditional office counterparts, but that’s not always the case. The past decade has seen several huge MOB developments reach completion. The largest was LA’s Cedars-Sinai Advanced Health Sciences Pavilion. Delivered in 2013, it sprawls over a total of 820,000 square feet.
Taking second place, Manhattan’s 750,000-square-foot Upper East Side medical center—the David H. Koch Center for Cancer Care—saw completion in 2020.
Larger Buildings to Be Delivered to Smaller Markets
The pandemic has indicated that while MOBs have been a more stable asset in times of uncertainty, they are also insufficient. This has prompted an increase in the construction of MOBs across the country.
There’s a clear trend for increasingly large spaces, particularly in smaller markets. The best example is New Brunswick, N.J, which boasts a 519,500 square feet MOB—The Jack and Sheryl Morris Cancer Center—due for completion in 2024.
The San Antonio, Chicago, Madison and Milwaukee markets are also part of this movement, with almost 2 million square feet of state-of-the-art medical office space in development across just four buildings. Notably, the top ten projects to be delivered by the end of 2024 account for a total of 4.4 million square feet of prime medical office space.
For an overview of the commercial real estate market in the areas mentioned above, visit the following links:
Houston Commercial Real Estate
Dallas Commercial Real Estate
Fort Worth Commercial Real Estate
Minneapolis Commercial Real Estate
St. Paul Commercial Real Estate