“U.S. consumers continue a multi-decade trend of increased spending on healthcare goods and services, which includes outpatient and hospital services."
With office markets facing historic uncertainty, office investors want a margin of safety as they consider opportunities. For medical office specifically, research indicates a single, often-overlooked local factor can consistently drive higher rents: Simply being close to a well-regarded hospital.
Last week we wrote about the impact of vintage year on fund performance, the punchline being you’re significantly more likely to outperform if you acquire assets in tougher economic times. Everyone knows office is in one of those moments now, so it felt right this week to highlight an unusual “reputation spillover” phenomenon seen in a slice of the office market that, research confirms, consistently sees higher rents.
First, the wide-angle view. Office vacancy jumped from 12% nationally in 2019 to 17% in 2023 and has dropped only slightly since, with different MSAs and asset types experiencing different rates of recovery. New supply this year will be the second-lowest since 2013, per Marcus and Millichap, but uncertainty is still high as tariffs and the spectre of recession loom while there are potential tailwinds of a corporate tax cut and the extension some of the the Tax Cut and Jobs Act provisions. It’s impossible to tell if office tenants will be expanding or contracting in the next 12 months.
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