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  • Krone Weidler

Physician Practice Employment Outpacing MOB Supply

The healthcare real estate market is experiencing an intriguing trend over the past few decades. As the chart shows, physician office employment growth has significantly outpaced the inventory growth of medical office buildings (MOBs) in the U.S.

Since 1980, physician office employment has grown steadily, hovering around 4-5% growth every 5 years. However, starting in 2000, employment growth accelerated, reaching nearly 10% from 2015-2020. This reflects the rapid expansion of health systems, many of which have been acquiring physician practices and hiring additional physicians and staff.

In contrast, the pace of MOB construction has not kept up with this employment growth. From 1990 to 2010, MOB inventory expanded by 15-20% every 5 years as developers built new properties to accommodate growing practices. But over the past decade, inventory growth slowed to under 10% from 2015-2020 even as physician employment rose sharply.

This mismatch between MOB supply and demand suggests a few key takeaways for healthcare real estate:

  1. Vacancy rates are likely very low in many markets as practices struggle to find space to house their growing physician and staff ranks. This is putting upward pressure on rents.

  2. More MOB development is needed to provide practices with expansion space and relieve supply constraints. Look for an uptick in new construction starts.

  3. Older, less efficient MOBs may have trouble competing as practices seek out newer space with modern layouts to support their growing teams. Owners of older properties may need to consider renovations to stay relevant.

  4. Practices that own their real estate may consider monetizing it to free up capital as property values rise amid tight supply. Sale-leasebacks could become more common.

Overall, this trend demonstrates the strong fundamentals underpinning the MOB sector as demand for healthcare services grows. Real estate will play a crucial role in enabling practices to expand to meet patient needs in the years ahead.

Source: Revista 2024

Krone Weidler, Founder & Principal

Cadre Healthcare Realty Advisors

1095 SE 177th Place, Suite 404-M14

Summerfield, FL 34491

C: (813) 842-2365

O: (866) 355-3594

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