Medical Office Real Estate Investing: How It Works

Definitions

What is a medical office building?

A medical office building (MOB) is a building leased to doctors, health systems and other outpatient providers for exams, procedures and treatment. It is built for care, rather than for general office work.

CBRE, JLL and Cushman & Wakefield now call the category "medical outpatient buildings." The reason is that newer ones often combine physician offices with imaging, labs and surgery centers. Senior housing is a separate property type and is not covered here.

Individual investors usually own these buildings through a real estate investment trust (REIT), a fund, a private syndication or a Delaware statutory trust (DST). The tenant mix and distance from a hospital shape most of the risk.

On-campus, off-campus, outpatient centers and ASCs: what is the difference?

On-campus and off-campus medical offices, outpatient centers and ambulatory surgery centers (ASCs) differ by distance from a hospital and by the kind of care inside. Medicare defines a hospital campus by distance, and investors add their own labels:

On-campus and adjacent buildings depend on one hospital system. Healthcare Realty is a listed REIT that owns only medical outpatient buildings. At December 31, 2025, it had 52.3% of its square footage on campus and 19.5% adjacent.

Medicare's shift of procedures out of hospitals adds work for surgery centers and other outpatient sites. Medicare is also cutting some payments to off-campus hospital departments (covered under risks below).

Why investors buy

Why are investors buying medical office real estate?

Investors are buying medical office real estate because an aging population and federal policy are pushing more care into outpatient buildings. Three dated facts carry the case:

• "Starting in 2030, when all boomers will be older than 65, older Americans will make up 21 percent of the population" (U.S. Census Bureau). By 2034, the Census Bureau expects people 65 and over to outnumber children, 77.0 million to 76.5 million.
• "Out of the top 10 growth areas for patient volumes, 8 are in outpatient services," according to JLL's 2026 Medical Outpatient Building Perspective.
• Medicare's 2026 outpatient payment rule began a three-year phase-out of the inpatient-only list, "beginning with the removal of 285 mostly musculoskeletal procedures." The rule, issued by the Centers for Medicare & Medicaid Services (CMS) on November 21, 2025, also added 289 procedures to the list approved for surgery centers. As of October 2026, a proposed 2027 rule (July 2, 2026) would remove 638 more services, but it is not final.

Money followed. CBRE counted $2.9 billion of medical office sales in Q1 2026, up 78% from a year earlier. Cushman & Wakefield put first-half 2026 volume at $6.7 billion, up 21%.

The 2026 market

What are medical office occupancy, rents and new supply doing in 2026?

About 92% to 93% of medical office space is occupied in the largest U.S. markets, and new construction is falling. JLL reported record occupancy of 92.7% in March 2026. Cushman & Wakefield measured 92.5% across its top 50 markets in Q1 2026. CBRE uses a different sample and reported 9.8% vacancy across 59 markets in Q1 2026, its fourth straight quarter of positive absorption.

Rents are rising slowly. CBRE reported a record average asking rent of $25.40 per square foot in Q1 2026, up 1.6% over the year. JLL notes that "new construction rents are running at nearly twice in-place rents." Construction was "just 2.2% of existing inventory," down 10% from a year earlier, according to Cushman & Wakefield.

What are medical office cap rates in 2026?

Average medical office cap rates were about 6.8% to 6.9% in the first half of 2026. CBRE's Q1 2026 average was 6.9%, "the first time it has dropped below 7.0% since Q3 2024," against 7.7% for traditional office. Cushman & Wakefield reported that cap rates "compressed 35 bps YOY to 6.8%" in the first half.

The best-located buildings trade tighter. Healthpeak sold $40 million of non-core medical office buildings at a 4.9% trailing cash cap rate in Q2 2026. Those prices were set when the 10-year Treasury was lower than the 5.09% it reached on October 16, 2026. Pricing can reset if rates stay higher.

Tenants and leases

Who are the tenants in a medical office building?

Health systems are the largest tenants in medical office buildings, with 46% of medical leasing tracked by JLL in 2025. Other tenants include physician groups, surgery center operators and specialty practices, some backed by private equity firms. At Healthcare Realty, health systems leased 45.6% of occupied space at December 31, 2025. On the same date, an investment grade rated healthcare provider leased 42% by square footage.

JLL warns that "policy changes are putting additional pressure on hospital system margins as the burden of uncompensated care for uninsured patients rises." A single-physician practice depends on one operator's reimbursement and credit.

Triple net vs gross leases in medical office: which is used?

Medical office uses both lease types: single-tenant buildings often use triple net leases, while multi-tenant ones more often use gross or modified gross. Under triple net terms, the tenant pays taxes, insurance and operating costs.

Under gross or modified gross terms, the landlord pays some or all of the costs. Rent increases are usually fixed steps or tied to inflation. The guide to NNN and gross lease types shows who pays what under each.

Tenant risk math

How do you underwrite tenant risk in a medical office building?

Underwriting tenant risk in a medical office building means weighting each tenant by the rent it pays and the years left on its lease. Then ask what happens to the building if the shortest or weakest lease ends. Weighted average lease term (WALT) is the standard summary.

The next questions follow: will the physician group renew, and what would its suite cost to re-lease to another specialty? Medical build-outs (plumbing, imaging shielding, procedure rooms) cost more than ordinary office space. A vacant specialized suite can take time and money to fill.

Risks

What are the risks of medical office investing?

The main risks of medical office investing are payment policy, tenant concentration, build-out costs and interest rates:

• Site-neutral pay: from 2026, CMS pays drug administration at excepted off-campus hospital departments at the physician fee schedule rate. That means about $290 million less in 2026, and CMS has proposed the same for imaging without contrast in 2027. Lower hospital pay off campus can change where systems choose to lease.
• Tenant concentration and re-leasing: a single-practice building rises and falls with one operator. Specialized suites are costly to convert.
• Interest rates: sub-7% cap rates came while long rates were lower than they are now.
• Changing owners: Healthpeak sold a 49% stake in an 86-property, $2.1 billion outpatient medical portfolio to Brookfield in July 2026.

Ways to invest

How can you invest in healthcare real estate: REITs, funds, syndications or DSTs?

Investors can own healthcare real estate through listed REITs, private healthcare real estate funds and syndications, or DSTs for 1031 exchange money:

In Relli's review of SEC Form D filings, about 20 issuers named a medical use. The review covered 4,172 new U.S. real estate offerings from October 1, 2025 to September 30, 2026. Most medical ones were small single-building offerings, with a median size of about $4.4 million and a median stated minimum of $50,000. Five were DSTs.

See the guide to DSTs and 1031 exchanges, and the minimums data study for the method.

Medical office vs multifamily: how do the numbers compare?

Medical office has traded at higher cap rates and lower occupancy than apartments in 2026.

A higher cap rate means more income per dollar paid and more perceived risk, not a higher return. Returns depend on the price, the debt and the sponsor, so compare offerings, not property types.

Before you commit

What should you look for in a medical office syndication?

A medical office syndication should show who the tenants are and how long they are committed. The offering should also show how the sponsor has handled medical buildings through a full lease cycle. Ask:

• Is the building on a hospital campus, adjacent or off campus, and which health system anchors the area?
• Who are the tenants, what share of rent does each pay, and does a parent company back each lease?
• How strong is each tenant's credit, and how much of its revenue comes from Medicare or Medicaid?
• Are the leases triple net or modified gross, how many years are left, and what are the rent increases?
• What would it cost to re-lease each suite to a different specialty?
• Do any physician tenants, referral sources or hospital partners also invest, and did healthcare counsel review the leases for fair market value?
• What exit cap rate and occupancy does the plan assume, compared with the 6.8% to 6.9% averages of early 2026?
• Can you see realized results, not estimates, from medical buildings the sponsor or its partner has sold?
• What fees does the sponsor charge, and is a Form D on file?

Sponsors sometimes call medical buildings "institutional-quality." The guide to "institutional-quality" claims shows how to test the label. Physicians should read the guide for doctors investing in real estate, which covers concentration in your own industry. Every investor can use the checklist for vetting a syndicator.