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.

While overall office vacancy hovers near historic highs, medical office buildings (MOB) within 0.5 miles of elite hospitals command more than 20% rent premiums compared to MOB more than two kilometers from a hospital. Allen Goodman and Brent Smith from Wayne State and Virginia Commonwealth Universities studied this “reputation spillover effect” and isolated hospital reputation as an independent value driver, with the rent premium degrading as distance from top facilities increases. For allocators navigating tariff risks and tax policy uncertainty, these MOB offer something rare: a hedge against cyclical office volatility.²  

The research applies to medical office buildings, which in the CoStar data used was 17% of the 16,000 urban and suburban office properties studied. The paper noted this designation wasn’t absolute and that traditional office buildings near hospitals will likely also “compete in a premium rent market.” MOB is a large category though, with uses spanning traditional to specialized office build-outs. Typical MOB examples include physician office buildings, ambulatory care facilities, surgery centers, medical imaging, health services administration, physical therapy, behavior health uses and wellness centers.

The research rated hospital reputations from one (lowest) to five, and among all MOB product, rents were 11% higher relative to professional office buildings in the sample, with the highest premiums discussed below. There was no evidence of a rent discount for MOB in proximity to low-ranking hospitals – meaning, it’s always better for an MOB to be near a hospital. Notably, every doubling of distance from a hospital triggered a 5% rent decrease and this rate of decrease steepens with higher hospital ratings. So proximity matters a lot.

The Wayne State/VCU study isolated distance from a hospital and a hospital’s reputation as independent rent drivers, controlling for size, age, and amenities. Their findings reveal dual leverage points:

• Reputational Premium: MOB within 0.5 miles of top-ranked hospitals (rated 4-5/5) achieve 16%+ base rent premiums vs. comparable buildings at a similar distance from near lower-tier hospitals.

• Proximity Premium: MOB earn about a 6% premium for being close to any hospital vs. one kilometer away.

The graph below illustrates the reputational effect in more detail, showing a significant and consistent rent premium for MOB near well-regarded hospitals vs. less-well-regarded, regardless of distance.

Higher level, this research is interesting as there’s little focused just on the MOB market, and because it finds rent drivers “unique to this segment.” It begs a question about what rent drivers are unique to other segments, a question we often strive to answer in this newsletter. 

The learning: Keeping in mind research-supported trends can favorably stack the odds as you make real estate investment decisions, especially in uncertain markets. Unlike professional office space, for which demand is more cyclical, the MOB segment attracts much more stable long-term tenants. And you can maximize that lower-risk income stream: Proximity to a health facility enhances base rent, and the reputation of the facility provides “a significant and material impact on the rent tenants are willing to pay.” If you want to look further, see the article (citation below) and explore this site, which is where the authors found data on hospital quality.

The Rake

Three good articles.

• Global Real Estate Capital Raising Down More Than Half - Mingtiandi

  Global real estate fundraising dropped 53% from its 2022 peak, per ANREV, as institutional investors retrenched amid rising rates and macro uncertainty. While capital flows remain constrained, this dislocation may offer opportunity for well-capitalized investors at attractive valuations.

• Cargo Slowdown Threatens Warehouse Demand and Retail Inventories - Globe Street

  Tariffs have sharply reduced cargo shipments, risking underutilized warehouses and constrained retail inventories ahead of key sales cycles. This disruption may pressure logistics revenues and retail margins, while creating potential opportunities to acquire discounted logistics properties as market dynamics shift.

• Coliving Apartments Gain Momentum In Empty Offices - CoStar

  Coliving apartment conversions are gaining traction as a cost-effective solution for underutilized office buildings in major U.S. cities, particularly Washington, D.C., and Chicago, where office vacancy rates are at historic highs.

The Harvesters

Someone making real estate interesting. They don't pay us for this, unfortunately.

Who: ATCAP Partners

What: An established sponsor with $1.7 billion of AUM, the team is focused on industrial properties, specifically institutional-quality multi-tenant shallow-bay infill assets.

The Sparkle: With a focus on smaller, infill assets that appeal to tenants with light manufacturing and/or last-mile distribution, ATCAP’s focus is not the big warehouses that most traditional industrial investors look for. Relative to big distribution facilities, shallow-bay product is more complex, has a more diverse base of potential tenants and can be harder to assess and value on the front end, meaning a firm is more likely to find alpha once the team is up the learning curve.

From the Back Forty

A little of what’s out there.

This LinkedIn post landed with us. We don’t know Judd, but he reminds us that in a dynamic environment, actions can have disproportionate results; small, considered decisions can be strategically significant. The post is worth reading and the video he included (reposted below) is very much worth watching, courtesy of National Geographic.

Link: LinkedIn

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1  https://www.cbre.com/insights/reports/2025-us-healthcare-real-estate-outlook

2  Goodman, A.C., Smith, B.C. Medical Service Quality and Office Rent Premiums: Reputation Spillovers. J Real Estate Finan Econ 66, 680–708 (2023). https://doi.org/10.1007/s11146-021-09855-z