Why medical office space remains strategic in CRE markets

While some sectors in commercial real estate (CRE) have struggled amid higher interest rates and weaker demand in recent years, medical office properties have been a stronghold. Many investors in this category have experienced robust occupancy rates and steady rent growth.

As investments, medical office buildings (MOB) have proven to be mostly resilient. This is likely because the health systems and physician groups that lease them are primarily stable tenants– more likely than those in other sectors to renew and extend leases and remain in the same location, close to their patients.

The tenant retention ratio, the percentage of tenants who renew their leases when they expire, is higher for the MOB sector than for almost any other U.S. commercial property category. The figure is typically quoted in the 80-85% range. Additionally, leases for MOB properties are generally longer than in most other CRE categories.¹

MOB tenants often complete specialized buildouts, which provides a good reason to renew when a lease comes up. Another incentive to stay is that patients are familiar with a particular location for their doctors and clinics. In some cases, a facility, such as an ambulatory surgery or imaging center, may require a certificate of need from a state health agency, and that may not transfer automatically to a new location.

Healthcare spending is relatively inelastic, providing another support for MOB assets. Demand for healthcare services remains largely unchanged even when the economy weakens or inflation gets worse. Medical providers are mostly paid by third-party providers, either the government or private insurers, which further insulates them from economic ups and downs.

Recent data show the health of the MOB sector. Occupancy rates are at a record near 93% in medical outpatient properties, according to fourth quarter 2025 data from JLL, the real estate services company. And average rents are growing at a healthy 3.3% a year, boosted by both escalators in existing leases and increases negotiated with renewals.²

“There are a lot of reasons medical buildings are steady, resilient, defensive assets,” says Jonathan Buehner, senior vice president and head of medical property lending at Capital One. “Stable tenants are part of the picture, but there are also demographic and economic trends aligning right now that boost occupancy and rents and make this an attractive sector.”

Demand for healthcare services is rising steadily as the population ages with a higher percentage of care being provided in outpatient settings, lowering the costs for delivering care and in some cases bringing that care closer to where people live.

Ambulatory surgery centers are expanding, moving a growing number of procedures out of hospitals and into specialized facilities on MOB properties. These centers are no longer just for routine procedures. Even complex surgeries such as cardiac ablation or hip or knee replacements might now occur in an ambulatory setting. Changes in Medicare rules are helping to accelerate this trend, increasing the number of potential tenants for high-quality MOB properties.

Economic trends are also helping to make MOB real estate more valuable. Rising construction costs over the last several years have potentially contributed to the slowing down of MOB construction. With demand outpacing the delivery of new supply, landlords are looking to possibly gain more pricing power in this sector.

All of this generally adds up to the potential of relatively stable, predictable cash flows and historically lower volatility, which can be attractive to investors. Traditional bank financing is potentially available for qualifying MOB assets, along with tailored financing packages that can match the needs of sophisticated healthcare investors.

Available financing options can extend beyond a conventional mortgage. Banks are increasingly structuring loans around investor acquisition strategies. They may offer financing for portfolios, flexible facilities that accommodate multiple purchases, and solutions that may support renovations, tenant improvements, or other capital needs after a property is acquired.

Investors are looking for a diverse range of financing solutions with bespoke structures, and should partner with a lender capable of offering a broad range of investing strategies and priorities. As Buehner notes, "We are focused on responding to specific client needs with a commitment to certainty of execution. Since 2010, our team has financed more than $50 billion in balance sheet debt."

The MOB space has emerged as a CRE sector in which many of the major fundamentals align. The combination of growing demand, constrained supply, and low tenant turnover may have solidified this asset class's reputation for resilience. For qualified investors ready to take advantage of these favorable dynamics, Capital One may offer tailored financing to help pursue some of the market's most compelling opportunities.

 

Products and services are offered by Capital One, N.A., Member FDIC. ©2026 Capital One. Individual results or outcomes may vary depending on the specific features of each transaction.

This article is provided for informational purposes only and does not constitute legal, tax, or financial advice. This is not a commitment to lend. All loan applications are subject to Capital One’s standard underwriting requirements and credit approval.

 

1. Capital One reported data as of August 2026

2. JLL Medical outpatient buildings ready for active 2026 despite policy headwinds