Why medical office buildings, ASCs are attracting more interest from investors

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The medical office building market is a niche one, but has attracted increasing interest from investors over the past decade.

Investors see medical office buildings, which typically include ASCs, physician offices and screening centers, as desirable assets because of their resilience during market shifts, high occupancy rates and positive outlook.

Largely because of the COVID-19 pandemic, medical office building sales volume declined 12.2 percent year over year to $11.1 billion in 2020, but the drop off was far less than other commercial real estate sectors, according to a report from Colliers, a real estate investment management company.

But in the coming years, in line with the country's aging population, the number of medical office buildings is expected to boom. To capitalize on this trend, many real estate firms and private equity companies are becoming more heavily involved in the healthcare space. 

Indianapolis-based healthcare real estate firm Cornerstone and New York City-based investment firm KKR announced their plan to invest more than $1 billion in medical real estate in the coming years. ASCs, single-tenant medical office buildings and facility-based outpatient centers are where the firms will be looking to invest their billion-dollar warchest.

Over the past four years, Cornerstone has acquired more than $150 million in healthcare assets, including 12 properties comprising medical office buildings, ASCs and clinics. The acquisitions ranged from orthopedic and dermatology ASCs to an eye clinic and an endoscopy center.

Other factors that make these properties so lucrative for investors is their stable occupancy rates — which have hovered around 90 percent over the last decade — that help reinforce the market from other more volatile real estate sectors.

The complexity of medical office buildings and the services they provide also drives occupants to sign longer leases, which are a prime indicator of a market's revenue predictability.

Demand for medical office buildings is expected to continue to grow in the coming years, particularly as the healthcare industry continues its shift away from inpatient care toward outpatient medical campuses and surgery centers.

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